Obama Can End the “Carried Interest” Loophole Without Congress

Wow, you really do learn something new every day.

I really, really hate the “carried interest” loophole that lets the ordinary income of hedge fund and private equity guys get taxed at the lower rate for capital gains.  Right now the top rate for ordinary income is 39%, and only 20% for capital gains, so we’re talking real money.  The top 25 hedge fund managers made more than $24 billion in 2013.

I always thought that Congress gaveth that loophole and Congress would have to taketh it away.

But nooooo!  As David Lebedoff writes at Slate*, the IRS issued a ruling in 1993, before hedge funds existed, that was intended to apply to real estate investments.   Congress never voted on it.  When hedge funds arrived on the scene, the IRS applied this ruling to them.  But President Obama could — right now, today, before his bedtime in Europe! — tell the IRS to stop doing that.

Looking for a real IRS scandal?  This is it.

* “Why Doesn’t Obama End the Hedge Fund Tax Break?”

Quick Thought on Unemployment Benefits

All of us have our pet peeves, and one of mine is the “carried interest” loophole, which lets those who get their income from venture capital, private equity, hedge funds, and real estate limited partnerships pay their taxes at capital gains rates (20%) rather than ordinary income rates (39.6%).

With about 1.3 million people (plus the people who depend on them) losing their unemployment benefits as of today, I went back to check what carried interest costs the Treasury, to see if it would have covered extending those benefits for three months.

Carried interest costs the government between $11 and 13 billion a year*, while the unemployment benefits would have cost $6 billion.

So score one for the caviar and Champagne crowd, and nothing for the Ramen noodle and tap water crowd.

See “A Costly and Unjust Perk for Financiers,” Lynn Forester de Rothschild, NYT, February 24, 2013

The Phony Patriots of “Fix the Debt”

The NYT has a terrific take-down on the front page today* of that “Fix the Debt” group.  They’re not high-minded at all, just a front for high-value tax benefits and defense contracts.

It’s a bunch of lobbyists trying to protect stuff like the “carried interest” loophole for private equity, tax breaks for multinationals, military spending, etc.  They want to fix the debt on the backs of others while keeping their goodies.

For example, their core principles argue that we should cut entitlements dramatically, but don’t say a word about cutting even a penny from the defense budget.

The story links “Fix the Debt” leaders to specific companies:  Sam Nunn to General Electric;  Erskine Bowles to Morgan Stanley; Judd Gregg to Goldman Sachs, Honeywell, and International Exchange.

The article is sickening, but a must read.  They pretend to be about patriotism, but really it’s all about their perks.

* “Public Goals, Private Interests in Debt Campaign,” Nicholas Confessore

I Hope Mitt’s 15% Tax Rate Will Get the Country’s Attention

Mitt Romney has been reluctant to release his tax records (and didn’t when he ran for senator, governor, or for president in 2008) because he knew people would be outraged that, as a Bain venture capital guy, he pays a rate of 15%, rather than ordinary income rates.  Of all the loopholes and funny business in our tax code, this is one of the worst, if not the worst.

While not releasing his tax returns, Mitt has now acknowledged that they show he pays 15%.

I am guessing that most of the country isn’t aware of this “carried interest” rule that lets him pay such a low rate, and although there have been efforts in Congress to change it, it’s never been an issue that’s lit up the switchboards.  I’m hoping that publicity about Mitt’s unfair tax advantage (and everyone else in venture capital, private equity, etc.) will finally generate enough anger to get the law changed.

By the way, Chuck Schumer, the Democratic senator from New York, and self-proclaimed champion of the little guy, has been one of the main forces in Congress blocking a fix for the 15% rule.  That’s because he gets tons of money from Wall Street, and he protects their unfair tax break in exchange.

I don’t want to “redistribute” Mitt’s wealth, I just want him to pay the 35% that I do.