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 quickly 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 that supported 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 brought more than just a lucrative and legal benefit to Johnson's donors. 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. But ProPublica has received a plethora of IRS records spanning thousands of the richest Americans. The records have allowed reporters this year to explore the multiple ways tax law offers the ultra-rich to avoid taxes.
The drafting of the Trump bill 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 by email, 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 "pass through" directly 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 "Main 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 rich 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 company logo is embossed on the bottom of countless paper bags. Uline generated nearly $ 1 billion in profits in 2018, according to ProPublica's analysis of its tax filings. 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 gave generously to support Trump's 2016 presidential campaign. The same year Johnson faced high odds on his re-election bid against former Senator Russ Feingold, the Uihleins gave more than 8 million to a number of political committees that covered the state with pro-Johnson and anti-Feingold ads Dollar. That lightning bolt led the Milwaukee Journal Sentinel to call the Uihleins "the Koch brothers of Wisconsin politics."
Johnson's campaign was also bolstered by Hendricks, Wisconsin's richest wife and owner of roofing 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.
Even after Johnson won the extension of the pass-through break at the end of 2017, the final text of the tax reform was not yet settled. A congressional conference committee had to iron out the differences between versions of the bill in the Senate and in the House of Representatives.
At some point during this process, eight words were added that were not included in either the House or Senate Act: "Applied without regard to the words 'Engineering, Architecture'."
With this weird legal text, Congress smiled at the Bechtel clan.
The engineering and construction company Bechtels is one of the largest and most politically connected private companies in the country. With surgical precision, the new language guaranteed the Bechtels a massive tax cut. In previous versions of the bill, construction would have been given tax breaks, but mechanical engineering was one of the industries that were excluded from the transit deduction for unclear reasons.
When the bill, with its eight words added, went into effect in 2018, the company's founder's three great-great-grandchildren, CEO Brendan Bechtel and his siblings Darren and Katherine, together cut $ 111 million to $ 679 million in income and taxes . Show.
And that's just a generation of Bechtels. The father of the heirs, Riley, also owns a stake in the company, as does a group of non-family executives and board members. Overall, the Bechtel Corporation generated a profit of around 2.3 billion US dollars in 2018 alone – the vast majority of which seems to be eligible for the 20% deduction.
Who wrote the sentence – and which legislator inserted it – is a much discussed mystery in the world of tax policy. ProPublica found that a lobbyist who worked for both Bechtel and an industrial trade group claimed the change as their own.
In the months leading up to the 2017 bill being passed, Bechtel had done full public relations in Washington, met with Trump administration officials, and spent more than $ 1 million lobbying on tax issues.
Marc Gerson of the Washington law firm Miller & Chevalier was paid to lobby for tax law by both Bechtel and the American Council of Engineering Companies, of which Bechtel is a member. In a presentation to members of the trade group a few weeks after Trump signed the bill, Gerson praised his efforts to obtain transit tax relief, calling it a "major legislative victory for the engineering industry." Gerson did not respond to a request for comment.
Bechtel's push was part of a long history of lobbying for tax breaks for the company. Two decades ago it even hired a former IRS commissioner as part of a successful bid to include "engineering and architectural services" in one of President George W. Bush's tax cuts.
The company's lobbying on the Trump tax bill and the tax breaks it received highlight a paradox at the core of Bechtel: The family has poured money on anti-tax candidates for years, even though, as Jane Mayer of The New Yorker wrote, Bechtel "almost owed his entire existence of the government patronage. " Best known as one of the companies that built the Hoover Dam, it has participated in and won tenders for federal projects in recent years. Including: a healthy portion of the billions that American taxpayers spent on rebuilding Iraq after the war. The company recently relocated its longstanding headquarters from San Francisco to Reston, Virginia, a hub for state contractors just off the bypass.
A spokesman for Bechtel Corporation did not respond to questions about the company's lobbying. The spokesman and a representative from the family's wealth management office did not respond to requests to accept questions about the family's tax records.
Brendan Bechtel has come out this year as a vocal critic of President Joe Biden's proposal to pay for the new infrastructure with tax increases.
"It is unfair to require companies to bear all of the additional costs of these public infrastructure investments," he said at a recent CNBC appearance.
As the pioneering tax reform accelerated the legislative process, other wealthy groups of business owners feared they would be left out. With the help of lobbyists, and sometimes after direct contact with lawmakers, they too were invited to what Trump called his "big, beautiful tax cut".
Real estate developers were among the biggest winners during the final spurt.
The Senate bill included a formula that limited the amount of the new deduction based on how much a runaway company was paying in wages. Republicans in Congress called the provision a reward for job creation companies. In fact, it meant that a highly profitable company with few employees – like a real estate developer – couldn't benefit much from the break.
Developers weren't happy. Several organized lobbyists and urged lawmakers friend to turn things around.
At least two of them turned to Johnson.
"Dear Ron," wrote Ted Kellner, a Wisconsin developer, and a colleague in a letter to Johnson. "I fear that the goal of a fair, efficient and growth-oriented tax reform, especially for private real estate transit companies, will not be achieved."
Johnson forwarded the letter from Kellner, one of his political donors, to senior Republicans in the House and Senate: "Everyone, yesterday I received this letter from very bright and successful business people in Milwaukee," added the legislation in theirs current form – through a "largely different, grossly unfair" treatment.
House Ways and Means Committee Chairman Kevin Brady, R-Texas, responded with a promise to do more: “Senator – I totally agree that we should continue to improve pass-through regulations at every step. For that you're a great champion. ”Congress is not governed by the Freedom of Information Act, but tax officials have been copied in email exchanges. ProPublica received the exchange following a lawsuit against the Treasury Department.
Waiter granted his request. In the final days of the legislative process, property investors were given a side door to receive the full deduction. The final legislation was expanded to include a language that would allow them to qualify if they had a large building stock, even if they had a small payroll.
This included some of the richest real estate developers in the country.
Tax filings received from ProPublica show that Donald Bren, sole owner of Southern California-based Irvine Company and one of the richest developers in the United States, was one of the real estate industry's biggest winners.
In 2018 alone, Bren personally enjoyed a $ 22 million deduction due to the tax break. Bren's representatives did not respond to emails and calls from ProPublica.
His company had hired Wes Coulam, a prominent Washington lobbyist at Ernst & Young, to represent his interests while the bill was being drafted. Before becoming a lobbyist, Coulam worked on Capitol Hill as a tax advisor to Utah Senator Orrin Hatch.
Hatch, then the Republican chairman of the Senate Finance Committee, publicly held himself responsible for the final draft of the new vent amid questions about real estate outsourcing. Hatch representatives did not respond to questions from ProPublica how the carveout was added.
ProPublica's records show that other big real estate winners Adam Portnoy, head of commercial real estate giant RMR Group, received a $ 14 million deduction in 2018. Donald Sterling, the real estate developer and disgraced former owner of the Los Angeles Clippers, won an $ 11 million deduction. Representatives from Portnoy and Sterling did not respond to questions from ProPublica.
Another gift to the real estate industry in the bill was a tax deduction of up to 20% on dividends from real estate investment trusts, better known as REITs. These companies are essentially bundles of various real estate assets that investors can buy portions of. REITs make money by collecting rents from tenants and interest on loans that are used to finance real estate businesses.
The tax cut on these investment vehicles was driven by both the Real Estate Roundtable, an industry-wide trading group, and the National Association of Real Estate Investment Trusts. The latter, a trading group dedicated to REITs, spent more than $ 5 million lobbying Washington in the year the tax bill was drafted, more than any year in its history.
Steven Roth, founder of the Vornado Realty Trust, a prominent REIT, is a regular donor on the political committees of both groups.
Roth had close ties to the Trump administration, including advising on infrastructure and doing business with Jared Kushner's family. He became one of the biggest winners from the REIT provision in the Trump Tax Act.
Roth made more than $ 27 million in REIT dividends in the two years following the bill's passage, potentially allowing him a tax deduction of about $ 5 million, tax records show. Roth did not respond to requests for comment, and its representatives did not accept any questions from ProPublica on his behalf.
Another carveout benefited investors in listed pipeline companies. Senator John Cornyn, a Republican from Texas, added an amendment for them to the Senate version of the bill just before the vote.
Without his change, investors who would have traded below a certain income would have received the deduction anyway, experts told ProPublica. But a number of restrictions came into effect for higher-income investors. To qualify, they would have needed the companies they invested in to pay substantial wages, and these oil and gas companies, like real estate developers, typically don't.
Cornyn's amendment clears the way.
The trading group for these companies and one of its top members, Enterprise Products Partners, a Houston-based natural gas and crude oil pipeline company, had both campaigned for the bill. Enterprise was founded by Dan Duncan, who died in 2010.
The Trump tax bill gave Duncan's heirs a victory. ProPublica's data shows that his four children, who own shares in the company, collectively claimed more than $ 150 million in fines in 2018 alone. The tax provision for "small businesses" was a stroke of luck for the Forbes family, the 11th richest in the country.
In a statement, a company spokesperson wrote, "The Duncan family abide by all applicable tax laws and will not comment on individual tax returns that are a private matter." Cornyn's office did not respond to questions about the senator's amendment.
The tax break is slated to expire after 2025, and a chasm has opened in Congress over the future of the scheme.
In July Senate Finance Chairman Ron Wyden, D-Ore., Proposed a bill that would end the tax cut for the ultra-rich early. In fact, anyone who makes more than $ 500,000 a year would no longer receive the deduction. However, it would be expanded to include business owners below this threshold who are currently excluded due to their industry. The bill would "make politics more equitable and less complex for medium-sized entrepreneurs while spending billions on priorities such as childcare, education and health care," said Wyden in a statement.
Meanwhile, dozens of trade groups, including the Chamber of Commerce, are pushing for the transit tax cut to be made permanent. This year, a bipartisan bill called the Main Street Tax Certainty Act was introduced in both houses of Congress to do just that.
One of the bill's sponsors, Rep. Henry Cuellar, D-Texas, put the law: "I am determined to be of vital help to the small businesses in our country and the communities they serve."