‘Can You Explain What ‘Buy, Borrow & Die' Is?’: Ben Ray Luján Asks Expert For Definition

4 months ago

During a Senate Budget Committee hearing earlier this month, Sen. Ben Ray Luján (D-NM) asked a witness about the term “Buy, Borrow & Die.”

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Transcript

00:00Dr. Stiglitz, I have some questions for you today. I've been hearing a lot about buy,

00:07borrow, and die. Can you explain what buy, borrow, and die is, Dr. Stiglitz?

00:16What that refers to is the way so many of the sheer buybacks work. What you do is you

00:27borrow money from the market to finance your buybacks. You get deductions for

00:38your interest on your borrowing. The sheer buybacks are taxed at favorable rates,

00:52and only the increment over what you purchased. Meanwhile, and this is probably the worst part,

00:59because you've reduced the number of shares of the company, the value, the price per share goes up,

01:08and the CEO gets a big bonus for doing nothing other than financial wizardry.

01:13It's nothing real. It doesn't help create jobs. It doesn't help the economy. In fact,

01:18it makes the economy worse because the company is now suffering from an additional liability

01:27from the borrowing. Dr. Stiglitz, in preparing for this hearing

01:34of several studies that I found, what I'm going to point to is some of the experts at Georgetown

01:40found that the wealthy avoid taxes for 75% of their investment income. Why is it that

01:48the wealthy engage in this tax avoidance strategy?

01:54Well, it's because our tax code gives them the opportunity to do it. Over the years,

02:03I've seen the very rich engage, particularly through hedge funds, in amazing

02:10strategies to avoid, and in some case, evade taxes. The worst get caught and have to pay back,

02:20but our tax code is just rife with these provisions that provide for advantageous

02:28treatment if you have smart tax lawyers. Dr. Stiglitz, trying to better understand

02:37trying to better understand tax policies that have been adopted

02:42in recent memory, namely under the previous president,

02:48there are estimates that have come out associated with what is a benefit to the wealthy

02:57from a stepped-up basis perspective, and the Joint Commission on Tax estimated that

03:03the step-up basis at death will cost the U.S. $299.3 billion from 2022 to 2026, or about $60

03:13billion a year, and so I just want to take a moment to put that into perspective. I'm one of,

03:21I think, two senators right now that went to pre-K. I thought everyone went to Head Start.

03:27I didn't know that I had to qualify for the program. That's a joke.

03:34What I understand about universal pre-K is that it costs about $14 billion a year,

03:41so again, $299 billion is the number I referred to earlier. The Affordable Connectivity Program

03:48that provides affordable broadband to over 23 million low-income Americans costs $11 billion

03:54a year. The United States recently passed the Bipartisan Radiation Exposure Compensation

03:59Reauthorization Act to deliver long overdue justice to those left out of the original RECA

04:04program passed in 1990 and amended in 2000, and the New Mexicans who had the first nuclear bomb

04:11dropped in their backyards were left out. The program's supposed to provide compensation

04:16to downwinders and uranium workers, but it expired on Monday. This just goes to show

04:24another area where investment from America can make a positive difference in the lives of so many

04:30that injustice has been the only thing that they've experienced. Now, Dr. Stiglitz, how does

04:36stepped-up basis and buy-borrow impact the ability of the government to fund critical programs such

04:43as education, health care, housing, and infrastructure development?

04:47I think the focus on the step-up basis, it's a mechanism by which rich people totally avoid

04:55paying taxes on the income that they've accrued, the capital gains that they've accrued for years,

05:03in some cases, decades. So while ordinary people are paying taxes year after year,

05:10if you get your income in the form of capital gains, you can postpone it, and then with a

05:15step-up basis, you never pay for it. One of the things that I argued in my introductory remarks

05:25was that constructive realization where you force individuals to pay year by year on their capital

05:34gains as they accrue would be an important step forward. But if you don't do that,

05:40it's absolutely imperative that you have the step-up basis. And as you pointed out, the revenues

05:48lost are very large and could be used in so many constructive ways. You gave a couple examples.

05:57There are more we could talk about, enabling more students to go to college.

06:06Tuition has gone up enormously. So there are a very large number of very productive investments

06:15yielding very high returns that would be able to be financed by the revenue you could generate

06:24from those two proposals that you talked about. Thank you. Thank you, Mr. Chairman.

‘Can You Explain What ‘Buy, Borrow & Die' Is?’: Ben Ray Luján Asks Expert For Definition

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