Senate Democrats Blast Trump Treasury Pick Bessent’s Tax Breaks

Senate Democrats took to task President-elect Donald Trump’s pick to run the Treasury Department for his use of legal maneuvers to pay less in taxes contributing to Medicare and state and local jurisdictions.

Bessent’s interest in Key Square Group LP, the hedge fund he founded, was structured to avoid taxes imposed on net earnings from self-employment that help fund the Social Security and Medicare trust funds known as SECA, according to a memo obtained by Bloomberg Tax, compiled by the Senate Finance Committee Democratic staff. The panel reviewed Bessent’s personal tax returns and financial disclosures between 2021 and 2023 and other financial disclosures.

“Mr. Bessent makes use of a tricky legal maneuver to opt out of paying into Medicare,” Senate Finance Committee ranking member Ron Wyden (D-Ore.) said at the outset of Bessent’s confirmation hearing on Thursday. “It’s a tax loophole that hurts Medicare, but benefits him to the tune of hundreds of thousands of dollars each year.”

Bessent also used a “workaround” that states have adopted to allow passthrough entities to deduct more than the federal $10,000 cap on state and local taxes.

Democrats’ found that Bessent deducted about $40,000 in SALT dues. Republicans in 2017 passed an overhaul of the tax code paid for in part by a cap of that deduction at $10,000 for individuals and families.

A Trump transition spokesperson, who spoke on condition of anonymity, said Wyden’s staff failed to prove Bessent violated the law and “resorted to a subjective interpretation of the tax code.”

“These meritless claims should be dismissed for the partisanship they represent,” the spokesperson said.

Both deductions are legal but in a gray area, and currently the subject of litigation.

The US Tax Court in 2023 concluded that partners who are limited in name only but otherwise active in the partnership aren’t exempt from the self-employment tax on their business profits.

The US Court of Appeals for the Fifth Circuit will hear arguments next month over whether the US Tax Court’s exemption standard is too narrow for the purposes of determining whether limited partners should be exempt from SECA taxes on their distributive shares of income.

“Bessent’s tax maneuvers were aggressive and contrary to the way the IRS views the law,” said Steve Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center. “However, the law itself is garbled, and taxpayers and the IRS are fighting out these issues in the court.”

—With assistance from John Wooley