Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Financial Planning > Tax Planning > Tax Reform

Sen. Warren Wants Investigation of Tax Loopholes, Bank Loans to Wealthy

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Warren wants Wyden to hold hearings and investigate wealthy individuals’ use of loopholes to avoid paying income taxes
  • Wyden should also investigate banks’ record lending to the wealthy.
  • The majority of tax avoidance loans and other tax avoidance tactics are not disclosed to the IRS.

Sen. Elizabeth Warren, D-Mass., is pressing Senate Finance Committee Chairman Ron Wyden, D-Ore., to hold hearings and investigate wealthy individuals’ use of tax loopholes to avoid paying income taxes, as recently reported by ProPublica and The Wall Street Journal.

Warren and Sen. Sheldon Whitehouse, D-R.I., both members of the Senate Finance Committee, told Wyden Wednesday in a letter that the recent ProPublica report “demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most.”

The tax records reviewed by ProPublica, the senators wrote, “show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.”

“ProPublica obtained a trove of tax data for the nation’s billionaires,” Warren and Whitehouse wrote. “It estimated that the tax bills of some of the nation’s wealthiest individuals were equivalent to just 3.5% of their growing fortunes — well below the typical rates paid by middle class wage earners. Several paid even less,” they wrote, citing Warren Buffett and Jeff Bezos.

The senators also told Wyden to investigate banks’ record lending to the wealthy, allowing “them take out cheap loans backed by their investment portfolios so they can fund their lifestyles while minimizing their tax bills,” as reported by The Wall Street Journal.

The banks “profit from these arrangements by boosting their management fees when they use these practices to help the wealthy avoid having to pay taxes,” the senators told Wyden.

Morgan Stanley’s wealth management clients “have $68.1 billion worth of securities-based and other nonmortgage loans outstanding, more than double the amount they had five years ago, and Bank of America has $62.4 billion in securities-based loans,” the senators wrote.

“The use and potential abuse of tax avoidance schemes by the wealthiest Americans is not occurring in a vacuum — it involves the nation’s largest financial institutions and wealth management firms that help develop these tactics and provide the financial infrastructure that allows them to be effective,” they said.

The senators continued that “because the majority of tax avoidance loans and other tax avoidance tactics are not disclosed to the IRS, an effective investigation of these tactics must involve the institutions that aid and abet them.”

The Finance Committee “has the right to obtain individuals’ tax records if necessary for investigative or legislative purposes. But the Committee can begin an investigation of the ultrawealthy’s tax avoidance without taking such a step,” the senators told Wyden.

“Access to enormous lines of credit is a key component of these financial strategies, and the Committee should investigate the role that large financial institutions play in this tax avoidance for the ultrawealthy — individuals with fortunes greater than $50 million — by lending them large sums, at low interest rates, allowing them to use their stock or other holdings as collateral, and allowing them to live on these borrowed funds in lieu of taxable income.”

House Ways and Means Committee Chairman Richard Neal, D-Mass., said on July 8 that his committee is mulling legislation that would limit “the total amount of money that can be saved in tax-preferred retirement accounts, and putting an end to the tax dodging some do when saving in IRAs.”

“Incentives in our tax code that help Americans save for retirement were never intended to enable a tax shelter for the ultra-wealthy,” Neal said, referring to ProPoblica’s recent report about Peter Thiel’s $5 billion Roth IRA. “The Ways and Means Committee is working on legislation that will stop IRAs from being exploited.”

Pictured: Sen Elizabeth Warren, D-Mass. (Photo: Bloomberg)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.