Rahm Emanuel has a line in Wednesday’s Journal that stops you cold: “some children of wealthy families attend retreats to learn how to manage their inheritances.” His point isn’t envy — it’s that a tax code with 271 loopholes has turned into a full-time hobby for the people best able to afford the hobby. His op-ed is an argument, not a bill, and we’re taking no side on it. But three of the four levers he’d pull run straight through the middle of an ordinary retirement plan, which makes it worth reading twice.
The setup: tax expenditures — the deductions, deferrals and carve-outs — will cost $2.3 trillion in federal revenue this year, more than Medicaid and Medicare combined, by Emanuel’s count. His model is the 1986 reform Ronald Reagan hammered out with Dan Rostenkowski, and he’d follow it with four steps. End the practice of borrowing against appreciated assets to live tax-free, and kill the stepped-up basis that wipes out capital gains at death. Close the offshore profit-shifting routes with an international floor. Scrap carried interest. And lift the top capital-gains rate back toward the 28% that prevailed in the late 1980s, up from today’s 20% plus the 3.8% investment-income surtax. He adds that loopholes alone won’t balance anything; spending has to move too.
Three levers that live in your plan
Carried interest is a private-equity problem, so set it aside. The other three are yours. Stepped-up basis is why so many families hold the appreciated stock and the paid-off house until the funeral: the heirs inherit at today’s price and the gain simply disappears. Borrowing against equity is the second half of the same play — the buy-borrow-die sequence — and it’s the engine behind the securities-backed lines of credit that banks now market to anyone with a seven-figure brokerage account. And the capital-gains rate is the number that decides when you realize gains, how much you convert to a Roth in a given year, and whether a concentrated position gets trimmed this decade or the next.
None of this is law. It’s one op-ed, by a Democrat, and Washington has argued about stepped-up basis for decades without touching it. We’re not predicting anything. We’re noting which assumptions your plan silently makes — and Emanuel’s closing line is at least a clean test for any of them: “Washington’s goal should be to create wealth, not protect it.”
Our read
This is Tax and Estate planning, and the lesson isn’t to rearrange your affairs around a column. It’s that a plan that only works if the tax code never changes isn’t a plan — it’s a bet. Take stepped-up basis: if it went away, holding until death would stop being a reason to keep a position you’d otherwise sell, which is a decent reason to ask today whether you own that stock for any other reason. Take the rate: harvesting gains now at 20% to beat a hypothetical 28% is a tax paid for certain against a law that may never arrive — the math only works if you were going to sell anyway.
The practical homework is dull and valuable: know your cost basis on every taxable position, know which accounts your gains live in, and know what your heirs would face under the rules as they stand. Those three facts don’t change when the code does; they’re what you’d need in either world. The time to find out where the gains are isn’t the week a bill reaches the floor — it’s a quiet afternoon when nothing’s pending.