August 15, 2007

Newsday: End the Carried Interest Loophole

More editorial support for closing the egregious "carried interest" loophole for hedge fund managers, this time from Newsday:

People who earn millions of dollars a year shouldn't be taxed at a lower rate than ordinary working stiffs. That's just basic fairness. It's also why Congress should close a loophole that allows managers of private equity firms and a few other businesses to pay federal income taxes on their earnings at the 15 percent capital gains rate, rather than the usual individual tax rate that for such high earners would typically be 35 percent.

The loophole deprives Washington of billions of dollars a year that stays in the deep pockets of rich individuals rather than flowing into government coffers to pay for things such as homeland security or health care for children.

The bone of contention here is "carried interest." That's a share of an investment fund's profit paid to the people who manage the fund. Those managers, though often called partners, don't invest their own money in the funds. The carried interest is their pay - sometimes hundreds of millions of dollars a year - for providing a service. Taxing that income as capital gains rather than earned income is a sweet deal for the lucky few. But it's an outrageous affront to ordinary workers who earn a lot less and are taxed a lot more.
There are bills in Congress to close the lucrative loophole. All other things being equal, the best approach would be the most comprehensive. Nobody enjoying the tax break should escape the reform. Sen. Charles Schumer (D-N.Y.), who has taken heat for resisting legislation that he said unfairly singles out New York firms, has promised to introduce that sort of comprehensive reform. That would give new meaning to the term, the fix is in.

A nice statement of the problem-- and the solution.


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