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The September 12 Senate Finance Committee hearing on "The 2025 Tax Policy Debate and Tax Avoidance Strategies" took a mostly high-level survey of where the political parties stand on tax policy and the scope of tax decisions required next year, when $4 trillion (before interest costs) would be required to extend expiring TCJA provisions amid federal debt of $35 trillion. Democrats highlighted the generational tax-avoidance potential of policies like stepped-up basis, while Republicans focused on the risks of allowing the IRC Section 199A pass-through deduction to expire.

Chairman Ron Wyden (D-OR) continued to highlight the "Buy Borrow Die" tax avoidance strategy under which, he said, "an ultra-wealthy investor uses his riches to acquire valuable assets … borrows against that value to generate cash," then avoids tax at death due to stepped-up basis. In contrast to Republicans calling for preservation of the 199A pass-through deduction, Wyden called it a "loophole" that "made the biggest winners out of high-income individuals like real estate moguls and oil and gas tycoons."

Ranking Member Mike Crapo (R-ID) said the TCJA had a positive effect on everyone in America, though there are concerns now about increases in cost of living and inflation. Taxpayers face significant uncertainty over taxes amid the question of whether Democrats will let portions of the TCJA expire and tax increases to take hold, he said.

Witnesses:

• Indivar Dutta-Gupta, Georgetown University and Roosevelt Institute Tax, advocated proposals to tax unrealized gains and reform stepped-up basis.
• Bob Lord, Patriotic Millionaires, called stepped-up basis a loophole that enables the Buy Borrow Die phenomenon, and highlighted grantor-retained annuity trusts (GRATs) as an estate tax avoidance mechanism.
• Jeff Brabant, National Federation of Independent Business, focused on 199A, saying, "If Congress fails to act, the 20% small business deduction will expire at the end of 2025 and over 90% of small business owners will see a significant tax increase."
• Daniel Bunn, Tax Foundation, warned that while "some may think targeting upper-income earners is a fiscally responsible way to address the deficit while tackling inequalities, this is unlikely to succeed on its own."

During Q&A, Wyden asked whether high-income individuals are going to stop making investments if taxes are reformed to make everyone "pay their fair share." Dutta-Gupta said no, the same motivations for profit and lowering risk would remain.

Ranking Member Crapo said there is an attack on 199A as a benefit to super-rich taxpayers. Brabant pushed back on that notion, citing an EY analysis released with NFIB showing that nearly 26 million small pass-through businesses claimed the deduction in 2021. The analysis concluded that small businesses would flourish by making the deduction permanent, creating 1.2 million new jobs each year for the first 10 years and 2.4 million annually every year thereafter, and result in a $750 billion GDP increase in the small business sector over the first 10 years, and a $150 billion increase annually after that.

Senator Steve Daines (R-MT) asked how small businesses would fare under Democratic tax plans, which threaten the 199A deduction. Brabant said they would likely increase prices or delay capital investments.

Senator Chuck Grassley (R-IA) cited the incidence of tax argument other members have made against increasing the corporate tax rate. He said the increase would be passed on to consumers through higher prices and workers through lower wages. "Corporations don't pay taxes, people pay taxes," he said.

Senator Mark Warner (D-VA) said the last true assessment of tax expenditures in Washington was the 2010 Bowles-Simpson commission, when members winced at federal debt of $16 trillion or $17 trillion that is now double that, at $35 trillion. He warned of the impact of interest on the debt, which, he said, "is going to eat us up."

Senator Sheldon Whitehouse (D-RI) expressed concern about multinational corporations (MNCs) moving profits offshore, saying discounted tax rates and other benefits are available when MNCs report income offshore and suggesting there is "gamesmanship" in terms of making sales in the US while claiming profits in low-tax jurisdictions. Dutta-Gupta said, "more than 60% of US multinational foreign profit is harbored in tax havens."

Senator Elizabeth Warren (D-MA) said Congress has the potential to "unrig" the tax code with proposals Democrats have long espoused. Lord highlighted the Wyden Buy Borrow Die argument, saying assets of high-income individuals are not taxed and that the wealthy are able to use their assets as collateral for borrowing. Chairman Wyden said he would be working with other members to address the question of whether the wealthy are going to be taxed on the income they enjoy.

The EY analysis is available here. Materials from the hearing are available here.