In November 2017, as President Donald Trump’s administration rushed to get a massive tax reform through Congress, Senator Ron Johnson stunned his colleagues by announcing that he would vote “no”.
The Wisconsin Republican made the rounds on cable television, becoming the first GOP Senator to declare his opposition, and terrifying Senate leaders who were pushing for the tax bill to be passed swiftly by a slim majority. “If they can do it without me, let them be,” said Johnson.
Johnson’s request was simple: in exchange for his vote, the bill must sweeten the tax break for a class of businesses known as pass-throughs as the profits flow on to their owners. Johnson praised such companies as “drivers of innovation”. Behind the scenes, the senator urged senior Treasury officials on the issue, as evidenced by officials’ emails and calendars.
Within two weeks, Johnson’s ultimatum brought results. Trump called the Senator personally to beg for his assistance, and the bill drafters fattened up the tax cut for these companies. Johnson turned a “yes” and claimed the change for himself. The bill went through.
The Trump administration advocated the pass-through regime as a tax break for “small businesses.”
However, confidential tax records show that Johnson’s last-minute maneuver benefited two families more than almost anyone else in the country – both worth billions and both among the Senator’s largest financiers.
Dick and Liz Uihlein from packaging giant Uline, along with roofer Diane Hendricks, donated around US $ 20 million to groups supporting Johnson’s 2016 re-election campaign.
The expanded tax break enforced by Johnson earned them $ 215 million in deductions in 2018 alone, drastically reducing the income they owed taxes on. At this rate, the cut could bring the Hendricks and Uihleins more than half a billion in tax savings over their eight-year term.
But the tax break not only brought Johnson donors a lucrative and legal advantage. In the first year after Trump signed the bill, only 82 ultra-rich households walked away along with more than $ 1 billion in total savings, an analysis of confidential tax records shows. Both Republican and Democratic magnates saw their tax bills cut by tens of millions, including: media magnate and former Democratic presidential candidate Michael Bloomberg; The Bechtel family, owners of the engineering office of the same name; and the heirs of the late Houston pipeline billionaire Dan Duncan.
Ordinarily, the extent of the riches that are distributed through opaque tax laws – and the beneficiaries – remain hidden from the public. A treasure trove of IRS records spanning thousands of the richest Americans enabled reporters this year to explore the multiple options the tax law offers the ultra-rich to avoid taxes.
The drafting of the Trump Act provides a unique opportunity to examine how the billionaire class can shape the code to their advantage and find new ways to evade taxes.
The Tax Cuts and Jobs Act was the largest revision of the Code in decades and arguably the one-year-old president’s most momentous legislative achievement. The bill was largely drafted in secret by a handful of Trump administration officials and members of Congress and pushed through the legislative process.
By the time the bill got through Congress, billionaires and their lobbyists lawmakers friends were able to suppress and stretch the bill to accommodate a variety of special groups. The spate of midnight deals and last minute language insertions resulted in an enormous redistribution of wealth into the pockets of a select group of families, drawing billions in tax revenues from the state coffers. This story is based on lobbying and campaign funding disclosures, Treasury Department emails and calendars obtained through a Freedom of Information Act lawsuit, and confidential tax records.
For those who benefited from the bill’s changes, the combined spending of millions on campaign fundraising and lobbying was tiny compared to years of huge tax savings.
A Uihleins spokesman declined to comment. Hendricks representatives did not answer questions. When asked emails, Johnson didn’t answer whether he’d spoken to Hendricks or the Uihleins about the extended tax break. Instead, he wrote in a statement that his advocacy was based on his belief that the tax law “needs to be simplified and streamlined”.
“My support for ‘pass-through’ businesses – which make up over 90% of all businesses – was guided by the need to keep them competitive with C-companies and had nothing to do with donors or discussions with them,” he wrote .
In the summer of 2017, it was clear that Trump’s first major legislative initiative to “repeal and replace” Obamacare went up in flames and brought with it a campaign promise. In search of victory, the government turned to tax reform.
“The tax cut law is getting closer and closer. Get in shape even better than forecast, “tweeted Trump. “The House and Senate work very hard and cleverly. The end result will not only be important, but SPECIAL! “
At the top of the Republicans’ wish list was a deep corporate tax cut. There was no doubt that such a cut would make it into final legislation. However, due to the complexity of the tax code, lowering the corporate tax rate will have no effect on most U.S. companies.
Corporate taxes are paid by so-called C companies, which include large publicly traded companies like AT&T and Coca-Cola. Most companies in the United States are passages, not C companies. The name comes from the fact that if any of these companies make money, the profits will not be subject to corporation tax. Instead, they “go straight through” to the owners who tax the profits on their personal income. Unlike major shareholders of companies like Amazon, who can avoid revenue by not selling their stock, owners of successful pass-throughs usually cannot avoid doing so.
Pass-throughs span the full spectrum of American business, from small hair salons to law firms to Uline, a packaging distributor with thousands of employees.
In addition to lowering corporate tax rates for the world’s AT&Ts, the Trump tax bill included a separate tax break for transit companies. For budgetary reasons, the tax break is not permanent and ends after eight years.
Proponents touted it as promoting “small business” and “high street,” and it is true that many small businesses received modest tax breaks. But a recent study by Treasury economists found that the highest-income 1% of Americans earned nearly 60% of the billions in tax savings created by the provision. And most of that amount went to the top 0.1%. This is because, while there are many small run-through businesses, most of the run-through profits in the country go to the wealthy owners of a limited group of large businesses.
Tax records show Bloomberg, who is the 20th richest person in the world according to Forbes, received the largest known deduction from the new provision in 2018, cutting its tax bill by nearly $ 68 million. (When he briefly ran for president in 2020, Bloomberg’s tax plan proposed ending the withdrawal, though his plan was generally friendlier to the wealthy than its rivals.) A Bloomberg spokesman declined to comment.
Johnson’s intervention in November 2017 was intended to increase the bill’s already generous tax break for transit companies. The bill had allowed business owners to deduct up to 17.4% of their profits. Thanks to Johnson’s stamina, that number was eventually increased to 20%.
That may seem like a small increase, but even a few extra percentage points can add tens of millions of dollars in extra deductions to an ultra-rich family in a year alone.
The mechanics are complicated, but for the rich in general, it means a business owner can withhold an additional 7 cents from every dollar of profit. To understand the stroke of luck, take the case of the Uihlein family.
Dick, the great-grandson of a beer magnate, and his wife Liz own and run the packaging giant Uline. The Pleasant Prairie, Wisconsin logo is embossed on the bottom of countless paper bags. According to a tax filing analysis, Uline posted a profit of nearly $ 1 billion in 2018. Dick and Liz Uihlein, who own the majority of the company, reported revenues of more than $ 700 million that year. But they were able to cut what they owed the IRS with a $ 118 million deduction generated by the new tax break.
Liz Uihlein, President of Uline, criticized high taxes in her company newsletter. In the year before the tax reform, the couple made a generous donation to support Trump’s 2016 presidential campaign. The same year Johnson faced long odds on his re-election bid against former Senator Russ Feingold, the Uihleins gave more than $ 8 million to a number of political committees, covering the state with pro-Johnson and anti-Feingold ads . This media flash led to the nickname “the Koch brothers of Wisconsin politics” for the Uihleins.
Johnson’s campaign was also bolstered by Hendricks, Wisconsin’s richest wife and owner of roofer wholesaler ABC Supply Co. The Beloit billionaire has publicly pushed for tax breaks and said she wanted to prevent the US from becoming a “socialist ideological nation.”
Hendricks said Johnson won her over after she grilled him at a brunch meeting six years earlier. She donated about $ 12 million to two political committees, the Reform America Fund and the Freedom Partners Action Fund, which bought advertisements for fine gold.
In the first year of the transit tax break, Hendricks received a $ 97 million income deduction of $ 502 million. By reducing the income on which she owed taxes, that deduction saved approximately $ 36 million.