There is a quiet storm raging in the nation’s capital, on Wall Street, and across the nation over a topic most Americans are not familiar with. Although most Americans may not know the intricacies of the carried interest tax loophole, they are all too aware of its effects. The carried interest loophole is important because it is the symbol of how big money has coerced the nation into dysfunction and inaction. It only serves one purpose: to prove the sentiment that the system is unfairly rigged in favor of the wealthy.
The carried interest tax loophole is the loophole that allows private equity managers and venture capitalists to count their income at capital gains rates — cashing in on a loophole that reduces their tax rate to almost half of what it would be in any other profession for that income. The abuse of this loophole has annoyed many for decades, but has gone relatively unchecked. This has resulted in some of the super wealthy putting more and more money in their pockets – while the rest of America pays the price.
{mosads}Now, I am in favor of people reaping the rewards and wealth that come with innovation and hard work. There is no issue with the wealth of the these fund managers — but there is an issue with fairness. It is simply not fair that a segment of wealthy people pay lower taxes than teachers, policemen, or family doctors. As a financially secure person myself, I recognize my obligation to pay the taxes that I can pay back to the country. I know that even though I may separate from my tax payments begrudgingly, that it is necessary for me to pay my fair share towards the federal, local, and state entities that serve society in a way that I can not.
When fair play is at stake however, that is worrisome. Without fair play, widespread economic inequality, crashing faith in institutions and government, and elected official’s inaction become the dangerous reality for America. A first obvious step to diverge from this path is to close the carried interest tax loophole – set the standard that our tax system does not value income earned one way or another.
There is widespread support to close the loophole. Major political figures from Donald Trump and Jeb Bush to Hillary Clinton and Bernie Sanders have publicly called for the closing of the loophole. Academics and economic experts such as Professor Victor Fleischer have demonstrated the benefits of closing the loophole. Hedge fund managers and venture capitalists have come out in support of closing the loophole they benefit from. There’s legislation already written in the House and Senate, President Obama’s desire to close the loophole, and even discussion of the U.S. Treasury’s ability to rewrite the intricate language that has given way to the loophole.
But it’s not in the history books yet. Why?
Wealthy special interest groups — i.e. lobbyists — and other private equity managers and venture capitalists have spent millions to get returns of billions on this loophole. If anyone needed concrete evidence that politicians are becoming empty suits controlled by special interest marionettists, look no further. Forced to rely on the big money of funders, officials will not move on legislation to close the loophole. Money may not outright buy the seats, but it is buying the votes.
Then you have some exceptionally wealthy fund managers crying out against the all those in favor of closing the loophole. They’ll throw all of the excuses at you — but every one of them can be struck down when you ask this in terms of fairness. The arguments to keep it open are weak at best and laughable at worst. Private equity managers, backed by the American Investment Council, and venture capitalists, backed by the National Venture Capital Association Trade Association, are able to compensate their lacking arguments with lobbying and checks. But with the mounting pressure, now is not the time to give up on this fight.
It is time for all Americans of means to set aside their faulty arguments and step up to do the right thing. Support closing the carried interest tax loophole, send the message to the American people that wealth does not own Congress and that our system is not unfairly rigged.
Stephen Prince is the Vice-Chair of the Patriotic Millionaires and a businessman who founded National Business Products, now known as Card Marketing Services, in 1993.
The views of Contributors are their own and are not the views of The Hill.