I don’t have the time or desire to put together a long post tonight on how our American tax code is unnecessarily complicated, and favors the super-rich. To do it well would be a daunting task, and I’m not up for it at the moment. What I am up for, however, is passing along this one, simple image from MoveOn, that I think captures one specific issue in need of reform very well – that being the so-called “hedge fund loophole.” For those of you who have never heard of the hedge fund loophole, here’s a little in the way of explanation from a recent piece in the Christian Science Monitor by Robert Reich:
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…
As someone who has a little high-tech startup experience, I’m aware of the critical role that investors play, and, as much as I like to beat up the super-rich on my blog, I do recognize that, while sometimes distasteful, these are people without whom we’d likely not have the internet, new treatments for cancer, personal computers, and any number of other things that we enjoy today. So, I do feel as though there should be incentives in place to encourage entrepreneurial risk-taking, within reason. For instance, it’s my understanding that legislation just passed the Michigan House which would, when enacted, allow certified angel investors to claim income-tax credits equal to 25% of an investment in qualified seed-stage or early-stage Michigan entities. (A cap would be set so that no more than $10 million in credits would be distributed per year.) And I support that legislation. It encourages risk taking when it comes to vulnerable, early-stage businesses, but it doesn’t seek to make profits, should they result, tax-exempt… Anyway, if you should happen to agree with the folks at MoveOn that the discrepancy between the tax rates paid by teachers and hedge fund managers is egregious, pick up a phone, call your elected officials, and tell them to close the so-called “hedge fund loophole.” (I believe it’s coming up for a vote shortly.) Here, for people in the Ypsi/Arbor area, are the numbers to call.
Senator Debbie Stabenow: 202-224-4822
Senator Carl Levin: 202-224-6221
Congressman John Dingell: 202-225-4071