During Tuesday night's Democratic presidential debate, many of the candidates called for ending a favorite tax break of the rich. And now they have some unlikely allies: billionaire, conservative hedge fund managers.
In Wednesday's Financial Times, hedge fund manager and longtime Republican supporter Leon Cooperman said that while he opposed a wealth tax, he supports eliminating a feature of the tax code known as the "step-up in basis" for capital gains.
The step-up basically allows billionaires like Bill Gates or Warren Buffett to pass billions of dollars to their heirs or to charity without ever paying taxes on it. The step-up costs the government between $30 billion and $60 billion a year, and almost all of the benefits go to the wealthiest Americans.
Former vice president and now presidential candidate Joe Biden was the first to propose ending the step-up, at the very beginning of his campaign. But now, most of the other candidates have signed on.
"I don't really think capital gains promote investment as much as advertised," he said.
Cooperman agrees. In his op-ed, he advocated removing "biases built into the tax code that frustrate the objective that everyone pay their 'fair share' " — and specifically targeted the step-up.
"Some wealthy business owners largely avoid paying income taxes by taking very little out of their companies in the form of salary or dividends and sitting on massive unrealized gains in their stock that can then be bequeathed to charity with no tax ever being paid," Cooperman wrote. "Closing that loophole would help underwrite even some of the most ambitious legislative programmes."
The growing chatter around step-up is a sign of a much broader change in the discussion of inequality. For years, conservatives emphasized mobility and opportunity over inequality, and supported spending cuts rather than higher taxes. But now, CEOs, billionaires, entrepreneurs and the biggest investors argue that too many Americans are being left behind by technology and globalization and that the tax code needs to be adjusted.
The step-up is one loophole that both conservatives and Democrats agree is difficult to justify in an age of huge stock-based fortunes that will never be taxed, while everyday wage earners pay up to 37% on their income.
The step-up isn't likely to change anytime soon, since there are no bills from either Democrats or Republicans in Congress to eliminate it. But that could change after the election, regardless of who wins.