The Trump administration quietly announced Thursday that it is abandoning a Biden-era effort to close a loophole that allows large business partnerships to repeatedly manipulate the value of their assets to minimize their tax obligations.
The Internal Revenue Service and Treasury Department announced the decision in a notice that received little attention in the mainstream press. The notice states that the administration, guided by an executive order President Donald Trumpsigned in February, intends to scrap so-called basis-shifting regulations that were finalized at the end of former President Joe Biden's White House term.
As the Biden Treasury Department explained last year, it was targeting a tactic whereby "a single business that operates through many different legal entities ('related parties') enters into a set of transactions that manipulate partnership tax rules to maximize tax deductions and minimize tax liability."
"These transactions defy congressional intent to avoid tax liability with little to no other economic consequences for the participating businesses," the department said. "For example, a partnership might shift tax basis from property that does not generate tax deductions (such as stock or land) to property that does (such as equipment). Taxpayers may also use these techniques to depreciate the same asset over and over."
The Biden administration estimated that the crackdown on basis-shifting would have raised $50 billion in federal revenue from wealthy taxpayers over a 10-year period.
Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, said in a statement Thursday that "this is a ridiculous loophole that allows the ultra-rich to dodge taxes by shifting assets around on paper while adding zero value to our economy whatsoever."
"Donald Trump is a known tax cheat, and it's clear his core economic agenda is to turn the government into an ATM for his billionaire pals, but that doesn't make it any less outrageous that his administration would reopen this kind of tax loophole for the rich while simultaneously wrecking Social Security and attacking Medicaid," Wyden added. "This is welfare for billionaire tax cheats and massive corporations, plain and simple."
The impending removal of IRS regulations targeting the rich comes as the administration is weaponizing the agency against nonprofits and immigrants and as congressional Republicans work on a legislative package that will likely call for massive tax breaks for the wealthy and large corporations.
A recent analysis by the nonpartisan Joint Committee on Taxation estimated that the GOP tax package could cost $7 trillion over the next decade, notwithstanding Republicans' misleading efforts to make the tax cuts appear free of cost.
While some congressional Republicans have floated the idea of allowing the marginal tax rate for the highest-earners to return to its previous level of 39.6% at the end of 2025, the proposal appears unlikely to garner enough support in both chambers.
"I think it is a mistake to raise taxes, and I don't believe Republicans are going to do that," Sen. Ted Cruz (R-Texas) told NBC News earlier this week.
According toBloomberg, the GOP's tax plan "will almost certainly" reflect "the priorities of a small minority of high-earning constituents in a handful of districts in New York, New Jersey, and California" as Republicans work to raise the state and local tax (SALT) deduction cap.
Bloomberg noted that the SALT deduction "is a write-off that most Americans will never claim, even in the districts of the lawmakers fighting hardest to increase the tax break."