Editorials & Other Articles

Bill USA

(6,436 posts) Thu Oct 17, 2013, 08:02 PM Oct 2013

with the coming Budget War with GOP, remember the 4 WORST Tax breaks (Carried Interest is no. 1)

http://money.cnn.com/2013/06/03/pf/taxes/worst-tax-breaks/

CNNMoney asked several tax experts to identify some of the worst tax breaks for individuals that lawmakers should reform or eliminate.

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Carried interest:

Managers of private equity, venture capital and hedge funds don't pay ordinary income tax rates on a portion of their income.

That portion, known as carried interest, represents a share of profits from the funds they manage. They are paid that share even if they were not required to invest their own money in the funds.

Carried interest is taxed at the long-term capital gains rate of 20% -- well below the top two income tax rates of 35% and 39.6%.

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Interested parties (do you pay taxes, interested in tax equity or a healthier, growing economy?) would do well to read up on these worst tax breaks and then start calling and emailing your Representatives and the White House to tell them the last 30 years of tax cuts for the highest earners is what laid the groundwork for the Trickle Down - Deregulation disaster of 2008. Thirty years of draining our economy of needed demand (i.e. consumer spending - which can only happen in a manner that will grow the economy IF consumers have some extra money in their pockets to spend) is enough. We need a much more progressive tax system. And now is the time to demand it.

Republicans have been very successful at lowering taxes on the highest income brackets and that is what leads to demand which is inadequate to enable businesses more opportunity to make money and grow. When the bulk of the population has more money to spend, you have a better economic climate for businesses to grow sales, make money and CREATE MORE JOBS.

Here's some more on the Budget Obama submitted earlier this year which the Republicans ignored.

Why Obama's Budget Eliminates the Carried Interest Tax Loophole

The budget President Obama released this week is aimed at fostering a long-term fiscal compromise with congressional Republicans, but it still includes some of the president’s priorities, including new revenues to help bring more balance to the overall deficit reduction efforts he and Congress have already made. The budget seeks $580 billion in revenues generated by closing tax loopholes and ending tax breaks that largely benefit the wealthy.

One of those tax breaks is the carried interest loophole, which benefits wealthy hedge fund managers and private equity investors. The loophole played a prominent role in the 2012 presidential election (it was, as Mother Jones termed it, “Mitt Romney’s favorite tax break“), because it was among the reasons Romney was able to pay such a low tax rate on his exorbitant income.

The carried interest loophole applies to barely anyone, but it gives the few who use it a major tax break by allowing them to treat income gained from the profits of their investors as investment income subject to the capital gains tax rate, which maxes at 20 percent, rather than the ordinary income tax rate that tops out at 39.6 percent. To take advantage of it, hedge fund and private equity managers take cuts from their investors’ profits instead of charging traditional management fees, thus reducing the amount they need to pay in taxes without reducing their income.

Carried interest income, as Seth Hanlon and Gadi Dechter have explained, is “derived from the labor and skill involved in managing other people’s investments” and should be taxed as ordinary income, not under preferential capital gains rates. The loophole costs the U.S. a substantial amount of money — Obama’s budget raises $16 billion over the next decade by closing it.
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