The carried interest loophole is a great topic for discussion because it helps lay bare how broken the U.S. tax system is. There should be broad agreement across the political spectrum that taxes on the richest Americans should be raised and, with that, enforced. The "private equity firms are the real job creators" line that the Chamber of Commerce is pushing is more trickle-down nonsense that Democrats should pushing back against with force.
Income is income, regardless of source. For personal tax purposes, there should be no special brackets or treatment. No matter how much you made, from $1 to $1,000,000,000 and up, there should be a single income line on the tax form and the taxpayer should add everything up--interest, dividends, capital gains, winnings or wages--and put the total on that line. Exemptions? Sure. Deductions? Okay, but they phase out above a certain income level.
Eliminate all the special classes of income and we could reduce the marginal rates and still increase tax revenue. And it makes it that much harder for the super-rich to cheat by eliminating possibilities.
What can I say? This needs to be done. Laws need to be passed. The IRS needs to be funded so they can go after these types of abuses of our tax system. We need political reforms. We need to get dark money out of politics. Just do it! Then maybe we can relieve the burdens that the workers face, & make America more equitable. Other countries have healthcare (including dental, hearing, & eye care), paid leave for birth & adoption for both parents, & many other benefits that improve the quality of life for its citizens. Why don’t we want to improve the lives of ALL of our citizens? If everyone has a better life, then my life is better, too.
Is carried interest any different then how regular long term investments are taxed? Because the reality is that these are investments. As long as they are paying their taxes like any other long term investment what's the problem? Plus, from what I've seen most private equity groups bring a lot of expertise to help companies grow and expand. Moving them to the next level. Compare that to a small or medium sized company getting a business loan from a bank. Hands down private equity brings more to the table and is vested in success. What we really need is for someone to develop a way for average investors to have access to the private equity market like Fundrise has done with real estate investing.
I feel obligated to point out that private equity profits by acquiring firms and assigning the debt to the firms they acquire. Many of those acquired firms go under because of that debt. KayBee Toys, Toys'Я'Us, Payless Shoe, and Radio Shack are prime examples, and there are many, many others. That's not a "next level" to which many aspire.
It appears to me that “carried interest” is a fancy term for “bonus”. It is compensation paid to the manager when the fund does well & meets certain criteria set up in his/her compensation package. It has nothing to do with any funds invested by the individual in a business. Hedge funds are not regulated by the SEC, & are usually invested in riskier investments than stocks & bonds with the goal of maximizing profits, frequently by unconventional means. Their goal is to maximize income & beat the market. Carried interest should be taxed as earned income, which is what it is.
The carried interest loophole is a great topic for discussion because it helps lay bare how broken the U.S. tax system is. There should be broad agreement across the political spectrum that taxes on the richest Americans should be raised and, with that, enforced. The "private equity firms are the real job creators" line that the Chamber of Commerce is pushing is more trickle-down nonsense that Democrats should pushing back against with force.
To the barricades!
Income is income, regardless of source. For personal tax purposes, there should be no special brackets or treatment. No matter how much you made, from $1 to $1,000,000,000 and up, there should be a single income line on the tax form and the taxpayer should add everything up--interest, dividends, capital gains, winnings or wages--and put the total on that line. Exemptions? Sure. Deductions? Okay, but they phase out above a certain income level.
Eliminate all the special classes of income and we could reduce the marginal rates and still increase tax revenue. And it makes it that much harder for the super-rich to cheat by eliminating possibilities.
What can I say? This needs to be done. Laws need to be passed. The IRS needs to be funded so they can go after these types of abuses of our tax system. We need political reforms. We need to get dark money out of politics. Just do it! Then maybe we can relieve the burdens that the workers face, & make America more equitable. Other countries have healthcare (including dental, hearing, & eye care), paid leave for birth & adoption for both parents, & many other benefits that improve the quality of life for its citizens. Why don’t we want to improve the lives of ALL of our citizens? If everyone has a better life, then my life is better, too.
Great deep dive!!!
Is carried interest any different then how regular long term investments are taxed? Because the reality is that these are investments. As long as they are paying their taxes like any other long term investment what's the problem? Plus, from what I've seen most private equity groups bring a lot of expertise to help companies grow and expand. Moving them to the next level. Compare that to a small or medium sized company getting a business loan from a bank. Hands down private equity brings more to the table and is vested in success. What we really need is for someone to develop a way for average investors to have access to the private equity market like Fundrise has done with real estate investing.
I feel obligated to point out that private equity profits by acquiring firms and assigning the debt to the firms they acquire. Many of those acquired firms go under because of that debt. KayBee Toys, Toys'Я'Us, Payless Shoe, and Radio Shack are prime examples, and there are many, many others. That's not a "next level" to which many aspire.
https://www.forbes.com/sites/andriacheng/2019/07/26/the-high-cost-of-private-equity-firms-retail-buyout-13-mln-jobs-study-finds/?sh=70b8392d6783
It appears to me that “carried interest” is a fancy term for “bonus”. It is compensation paid to the manager when the fund does well & meets certain criteria set up in his/her compensation package. It has nothing to do with any funds invested by the individual in a business. Hedge funds are not regulated by the SEC, & are usually invested in riskier investments than stocks & bonds with the goal of maximizing profits, frequently by unconventional means. Their goal is to maximize income & beat the market. Carried interest should be taxed as earned income, which is what it is.