Tax break favors the high-fliers

Tax break favors the high-fliers
By Donovan Slack
Globe Staff / December 29, 2010

WASHINGTON — Hedge fund managers, venture capitalists, and other financial high-fliers have more to celebrate this holiday season than year-end bonus checks.

Thanks to a $4 million lobbying campaign in Congress, and the support of key senators in both parties, these financial managers are still paying much less in taxes on income they get from successful investments, because of a special federal tax break. While wage earners are taxed as high as 35 percent, the investment managers pay the lower capital gains rate of 15 percent on this income.

Venture capitalists and similar investment managers argue the tax break is an essential economic tool because it provides them with an incentive to make successful investments that create jobs. Massachusetts has some of the nation’s most prominent venture capital and private equity firms, and a sizable community of hedge funds, so its members have been prime beneficiaries of the special tax break.

Meanwhile critics, including President Obama, contend the break is an example of the inequity of tax rates. Obama targeted it for elimination, so the fund managers would be taxed at the same rate as wage earners. The administration said the change would yield $24 billion in taxes over the next 10 years.

But despite the House of Representatives soundly supporting elimination of the tax break, the effort got no further as the Senate declined to go along this year.

While every nickel a wage earner gets in his paycheck is liable to SS tax.

The capital gain/dividend tax cuts are the most unfair, and they are a massive giveaway to the wealthy.

Those of us who don't have all the inside info, etc., are screwed. The stock market has been basically flat since 2000 and after you pay mutual fund manager fees, you have a loss. So much for all the benefits of saving and compounding. Bonds are now tanking and CD and money market rates have been next to nothing for a very long time. Is it any wonder people feel helpless to try to secure their futures?