The Challenge of Closing Tax Loopholes For Billionaires
by Robert Reich, from his blog
Sunday, May 23, 2010
Who could be opposed to closing a tax loophole that allows hedge-fund and private equity managers to treat their earnings as capital gains – and pay a rate of only 15 percent rather than the 35 percent applied to ordinary income?
Answer: Some of the nation’s most prominent and wealthiest private asset managers, such as Paul Allen and Henry Kravis, who, along with hordes of lobbyists, are determined to keep the loophole wide open.
The House has already tried three times to close it only to have the Senate cave in because of campaign donations from these and other financiers who benefit from it.
But the measure will be brought up again in the next few weeks, and this time the result could be different. Few senators want to be overtly seen as favoring Wall Street. And tax revenues are needed to help pay for extensions of popular tax cuts, such as the college tax credit that reduces college costs for tens of thousands of poor and middle class families. Closing this particular loophole would net some $20 billion.
It’s not as if these investment fund managers are worth a $20 billion subsidy. Nonetheless they argue that if they have to pay at the normal rate they’ll be discouraged from investing in innovative companies and startups. But if such investments are worthwhile they shouldn’t need to be subsidized. Besides, in the years leading up to the crash of 2008, hedge-fund and private equity fund managers weren’t exactly models of public service. Many speculated in ways that destabilized the whole financial system.
Nor are these fund managers especially deserving, as compared to poor and middle-class families that need a tax break to send their kids to college. Nor are they particularly needy. Last year, the 25 most successful hedge-fund managers earned a billion dollars each. One of them earned 4 billion dollars. (Paul Allen’s personal yacht holds two luxury submarines and a helicopter. Henry Kravis is one of the wealthiest people in the world.)
Several of these private investment fund managers, by the way, have taken a lead in the national drive to cut the federal budget deficit. The senior chairman and co-founder of the Blackstone Group, one of the largest private equity funds, is Peter G. Peterson, who never tires of telling the nation it faces economic ruin if deficits aren’t brought under control. Curiously, I have not heard Peterson advocate closing this tax loophole as one way to further the cause of fiscal responsibility.
Closing tax loopholes for billionaires may seem like a no-brainer, especially at a time when the nation is cutting back spending on the middle class — slashing budgets that fund child care, public schools, and public universities. Tens of thousands of teachers are getting pink slips.
But you can expect a huge fight.
There is also a moral issue here. Call me old fashioned but I just think it’s wrong that a single hedge fund manager earns a billion dollars, when a billion dollars would pay the salaries of about 20,000 teachers.
Link to original post: http://robertreich.org/
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2 comments:
A large proportion of the returns from these funds flow back to the original investors - who are not people at all - they are pension and retirement plans. My wife's plan has such investments. My own plan is sometimes in, sometimes out.
Many of the big, rich billionaire investors are not people at all. They are retirement/pension plans that stand in for literally millions of ordinary people - teachers, auto workers, government workers, and more.
There are more billionaire retirement/pension plans than actual people who are billionaires.
Not quite as simple as it sounds.
I hope they leave it alone, or charge taxes on individual income but not retirement/pension plans.
First, I can tell you I have virtually no respect for anyone--including you, whoever you are--for remaining anonymous in your post. I abhor cowardice. You may even be a friend, in which case, it makes it all the sadder. It happens all over the internet but still, I find it repulsive. Heck, you can even hide behind a fictitious name of some kind, for that matter, but people don't even do that.
But that's a different matter.
Second, and more to your point, the fact is, there are billionaires--and that's what this refers to--who could have a responsible, fair tax put on these transactions. That's all. It wouldn't touch people like you and your wife. It has nothing to do with you--or them. and it's not about taxing for taxing sake, either. It's about paying for the things we need.
Thanks for your response, regardless.
mr
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