Hedge Fund Tax Reform, No, No, No

Mortgage and tax reform bills have both been passed by the House. From the Boston Globe:

By a 291-127 vote, the House approved a bill targeting loose and deceptive loan practices that helped inflate the recent housing bubble. Steered by Democratic Massachusetts Representative Barney Frank, it calls for licensing of mortgage brokers and bank loan officers, bans certain predatory lending practices and bolsters borrower protections.

Sounds like a good move for the Democrats doesn’t it? So does increasing the taxes hedge funds and private equity firms have to pay on their profits, but key Democratic senators are expected to oppose both measures as passed by the House. Senators like Chuck Schumer are already on record opposing such reforms. The House tax reform bill would more than double the tax rate on “carried interest,” the compensation that executives at buyout and venture-capital firms, as well as real estate partnerships, receive for investment services. The measure also would require hedge-fund managers to pay tax on income they defer in offshore accounts. Steve Benen spells it out nicely:

There’s no rational or reasonable explanation to justify the hedge fund tax loophole. It may sound like one of those turgid debates that make most people roll their eyes, but it’s really quite simple: the tax rates on hedge-fund managers’ income are, inexplicably, lower than the rates on everyone else’s income.

The debate is not about taxing capital gains like regular income, though some of the less honest among us might make that claim. The point here is that hedge-fund managers should see their income treated just like our income. Right now, they pay capital-gains rates (15%), we pay income-tax rates (35%). The president, congressional Republicans, and a disconcerting number of Dems (Chuck Schumer, we’re looking at you) believe they deserve to keep a tax break that has no rational purpose.

And what a break it is. As a result of this bizarre policy, the government loses out on $6.3 billion of revenue each year (a sum which could pay for healthcare for 3 million children). What’s more, almost $2 billion a year in unjustified tax breaks go to just 25 individuals.

Wow, forced to pay a fair tax on income? The idea. It almost sounds like a great reform on which to win a presidential campaign upon, but most of the Democratic candidates have little if nothing to say on the subject, and our dear Harry Reid assured the hedge funds and private-equity firms that the $6.1 million they’ve spent this year lobbying against any tax increase worked by telling them in October that the reform would not be taken up this year. But thanks to House vote, Reid and Schumer may still have to face at least some of the music.

Of course it almost goes without saying that Senate Republicans also oppose the bill and President Bush is expected to veto any bill that includes the tax increases. But still, why not give it a try boys?

---

Enjoy this post? Leave a comment below or subscribe to my feed. You also can sign up for email delivery by clicking here.

Reno and Its Discontents | Powered by WordPress | ElegantBlue is a custom theme by Nathan Rice