Matt Taibbi: Obscene tax break survives again

[Enrique]

http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/213905/83512

Once again a key piece of news has passed virtually without comment.

While the entire nation argues over nonsense like the WTC Mosque, Rick Sanchez, and, yes, blue-red culture war stuff like the Tea Party, congress yesterday quietly took a knee on the “carried interest” tax question. In doing so they decided not to take a vote on changes already approved by both houses that would scale back perhaps the most preposterous tax break in the entire federal code, one that leaves hedge-fund gazillionaires like Stevie Cohen and John Paulson paying less than half the top tax rate paid by most middle and upper-middle class Americans.

The carried interest tax break is a classic example of how in America constituencies with the means and the bureaucratic endurance to get what they want slowly hack away at the government over time, carving out exemptions to their civic responsibilities while ordinary people suck the proverbial egg. A 100% or 200% tax break for hedge fund and private equity billionaires is not the sort of thing that one passes instantly, by standing up in front of big campaign crowds and urging on a mob; it takes a long time and a lot of behind-the-scenes baby steps.

Once upon a time, we didn’t make very many distinctions about taxable income. Whether you made your money driving trucks or buying and selling stocks, you made what you made and you paid the rate outlined in your bracket. Then a movement coalesced behind the idea that the government should give a tax break to those persons who made their money investing, because after all investment creates jobs (readers will note here my desperate attempt to avoid mentioning yet again the influence of Ayn Rand on these modern economic policies). At various times in our history, this resulted in, among other things, a tax break for income earned on capital gains, i.e. the money you make when you buy something (i.e. stocks) and then sell it later for a profit.

The capital-gains-cut movement was opposed by of all people Ronald Reagan, who in 1986 signed into law a thing called the Tax Reform Act that that ended capital gains exemptions and left all types of income taxed at the same rates. Some conservatives have never forgiven Reagan for this move. In any case, over the next 20 years, the capital gains cuts were gradually restored. Clinton in 1997 passed the Taxpayer Relief Act that cut the top rate from 28% to 20%. Then Bush came into office and with his famous monster cuts slashed the capital gains rate even further, to 15%. Bush also reduced taxes on dividends to the same rate as capital gains, 15%.

(...)

[jgraz]

1. K&R -- this has gotta be the most disgusting piece of our tax code.

[stevedeshazer]

2. An Ayn Rand book burning event is in order.

I'll light the match.

[John Q. Citizen]

3. Better yet would be a book reading; We could present Adam Smith' "The Wealth of Nations" and

educate the masses on his ideas about progressive income taxes being essential to the functioning of society, for everyone.


http://en.wikipedia.org/wiki/Progressive_tax

[Ruby the Liberal]

4. There is one positive provision of this loophole

If you sell your position within a year of buying it, you are taxed at ordinary income levels, not cap gains.

This is good, imo, because middle class investors are more likely to hold their investments longer term (thus benefiting from the lower rate) where hedge funds and HFT quants hold positions for much shorter durations.

What I would like to see is a tax/fee per trade. It doesn't have to be much and it will raise revenue while taking some of the wind out of the HFT sails, thus making the market a slightly more level playing field.

[donheld]

5. kick for Matt

[voteearlyvoteoften]

6. Taibbi !

[nashville_brook]

7. k and r -- lazy money should be taxed at a HIGHER rate. period.