Thursday, July 07, 2011
When an individual’s income, both pre-tax and after-tax, goes up more than 400%, shouldn’t they pay taxes like those eking out a living?
That’s the argument by tax reformers who want to go after some of the biggest earners on Wall Street. In 2010, the 25 most successful hedge fund managers in the nation collectively earned $22 billion. But they didn’t pay taxes at the same rate as ordinary working Americans. If the special loophole they enjoy was eliminated, hedge fund tycoons would pay enough money into the U.S. Treasury to cut the national deficit by as much as $44 billion over the next 10 years.
Former Clinton Labor Secretary Robert Reich estimates that $20 billion a year would flow into the U.S. Treasury from all hedge-fund managers combined.
The tax break is known as the carried-interest loophole. It allows hedge fund managers to treat profits on money received from investors as capital gains, not income. Instead of being taxed at 35%, the money is taxed at 15%. Typically, these private-equity managers receive 2% of assets as regular fees taxable as income. The big bucks come from the 20% they get from the fund’s proftis, which they pay the lower tax on.
These wealthy individuals are part of the 400 highest-earning households—a group that enjoyed phenomenal growth in their incomes from 1992 to 2007, according to the Economic Policy Institute. During this span, the richest of the rich saw their pre-tax earnings grow by 409% and their post-tax income increase by 476%.
-Noel Brinkerhoff
Closing the Hedge Fund Manager Tax Loophole Would Raise $4 Billion Annually from the 25 Richest Managers (by Pat Garofalo, ThinkProgress)
If the Top 25 Hedge Fund Managers Paid Taxes Like You and Me, We'd Cut 44 Billion of the National Deficit (by RJ Eskow, The Smirking Chimp)
Will Congress Close Tax Loopholes for Billionaires? (Robert Reich)
Where Has All the Income Gone? Look Up. (by Lawrence Mishel, Economic Policy Institute)
Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data (by David Cay Johnston, Tax.com)
Special Interest (by James Surowieki, The New Yorker)
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