Of the many injustices that permeate America’s byzantine tax code, few
are as outrageous as the tax rate on “carried interest” — the profits
made by private equity and hedge fund managers, as well as venture
capitalists and partners in real estate investment trusts. This huge tax
benefit enriches an already privileged sliver of financiers and
violates basic standards of fairness and common sense.
President Obama recently suggested that he would ask Congress to close
this loophole. Eliminating the carried-interest tax rate should be an
easy sell. It should play to Republicans’ supposed hatred of government
handouts and to Democrats’ commitment to social justice.
But because of the financial lobby’s clout, the loophole most likely
won’t be closed. If it isn’t, shame on both parties for giving us
another reason to distrust our democracy and our capitalist system.
While the tax legislation passed on Jan. 1 increased the top
individual-income tax rate to 39.6% from 35% for couples
making more than $450,000 and individuals making more than $400,000, it
left carried-interest income taxed at just 20% ...
No other affluent Americans enjoy this benefit. A brain surgeon,
stockbroker, corporate lawyer or actor will have to pay the new top
marginal rate percent, while a general partner who manages other
people’s money pays, on carried-interest income, only the 20%
rate on long-term capital gains. ...
This state of affairs denies our Treasury much-needed revenue; fuels
public cynicism in government; and is evidence of the “crony capitalism”
that favors some economic sectors over others. When plutocrats join
with both parties to protect their own vested interests, the result is a
corrosion of confidence in the free-market system.
The carried-interest loophole may seem small compared with this year’s
projected $900 billion deficit, but ending it would be a major signal
that Washington is ready to put an end to business as usual.