Early in March 2001, newly retired and feisty, I wrote to my Congressman from Manhattan. I still have his answer. “Dear Mr. Scorse: Thank you for your letter on the calculation of capital gains. You raise a very interesting point. I have not heard much about whether the failure to require reporting of basis prices for securities has resulted in any significant tax evasion. . . . I will inquire of Internal Revenue Service if there is a problem and ask if they have any recommendations on necessary action. Sincerely, Charles B. Rangel, Member of Congress.”
I was off and running (okay, walking) on my personal Mission: Impossible. I had no tax expertise, had never worked in a related field, but I wanted a change in the federal Tax Code. My letter to Rangel told why. Wages were reported to the Internal Revenue Service, but not capital gains. That wasn’t fair, and it was fiscally foolish as well. I never imagined a fraction of what happened.
I learned, for example, that anybody with a cause can testify at a Congressional hearing; it’s all online, simple as can be. Just go to the web site of the relevant committee, watch for announcements of hearings, follow the rules for submitting comments, and say your piece. In due time, your testimony will appear in the written record. It’s only words at this point, but it gets your position out there. As the ads say for the New York Lottery, “Hey, you never know.”
Long after one of those hearings, out of the cyberspace blue, came an email from an aide to Senator Evan Bayh (D-Ind.). “I read with great interest your testimony before the House Ways and Means Committee on the revenue lost to the federal government due to the underpayment of capital gains taxes,” the email said. The aide would like to chat; could we set a time?
We spoke the next day, and I was thrilled to hear that Bayh was set to introduce a basis reporting bill. After our talk, the aide asked me to send along a letter, cc’d to me, that Rep. Rangel had received from the Treasury Department in response to his inquiry. It included these sweet words: “Mr. Scorse believes that tax compliance would be improved if information reporting for capital gains included the amount of capital gain income that a taxpayer is required to show on his or her return. We couldn’t agree more! Information reporting is the most efficient, least intrusive way of helping taxpayers comply with their tax obligations to the federal government.” The phrase “information reporting” is a euphemism for “reported to the Internal Revenue Service,” the way wages have been reported ever since World War II. If basis reporting were enacted, stock market capital gains would effectively be reported as well. The IRS already received proceeds information; if basis prices (the prices investors pay going in) were also reported, profits from investments would become as transparent as wages from employers.
The aide later told me that Bayh had walked across the Senate hall, showed the Treasury letter to his colleague Tom Coburn (R-OK), and convinced him to sign on as the first Republican cosponsor. Basis reporting went on to become a Beltway minor miracle: a bipartisan bill, backed even by the Bush Administration.
Resistance from securities firms stalled basis reporting in the Congress. If it couldn’t pass with bipartisan support, it seemed doomed. The bill was re-introduced on February 14, 2007. The Congressional Record notes that one colleague took the floor to join Bayh for the reintroduction; it was the junior senator from Illinois, Barack Obama.
Scary times lay ahead. On September 15, 2008, Lehman Brothers imploded. On September 29, an angry and defiant Congress turned down the bank bailout proposed by President Bush. Four days later, shaken by cratering markets, legislators reversed course and passed emergency legislation, including the Energy Improvement and Extension Act. My inbox showed an email from Bayh’s office: Deep inside the Act, tacked on, was basis reporting. Elated, I relayed the news to tax expert and author David Cay Johnston. I’d met him at a talk he gave years ago, and we struck up an email relationship. He’s a warrior for the 99%, and I knew he’d be as happy as I was.
Johnston’s third book on taxes, The Fine Print, came out in 2012. I finally got to it in February of this year. I was reading it, nearly finished, when these words sent me into orbit: “For stocks, mutual funds and bonds . . . Congress now requires brokerages to report the basis of these investments, a reform wrought partly after my reporting on this issue and the work of others, including Gerald Scorse, who pressed this issue with lawmakers. Like Scorse, you can affect the law if you work at it.”
And maybe feel the rush of coming upon your name in a book, index and all: “Scorse, Gerald, 272.” Hey, you never know.
Copyright 2013 Gerald E. Scorse
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