Time to reject tax-policy superstition

One of the popular themes at the recent March for Science – an anti-Trump rally held because it was a day with a vowel in it – was attacking those who reject the scientific community’s expertise. I even had one Facebook friend stream video of himself with a sign that read “Science > Superstition.”

The politics of that event notwithstanding, the notion that Americans increasingly don’t accept expert opinion is not off. PBS ran a remarkably nonpartisan editorial, “The problem with thinking you know more than the experts,” which blamed the rejection of expertise not just on the superficiality of Google searches but our feel-good culture too.

{mosads}Increasingly, however, laypeople don’t care about expert views. The smartphones and tablets that we carry around all day that we think can answer anything are only part of the problem. The American educational system, from grade school to graduate school, encourages students to think of themselves and their views as special.

The left loves to throw this at the right, but they’re just as quick to reject experts they don’t like. Generals on national security. Doctors who reject socialized medicine. And financial experts when they talk about tax policy.

We’ve got ringside seats for that last one, as Republicans in Congress and the Administration try to simplify and improve the tax code: keeping America friendly for investors and helping people keep more of what they earn. The better investment opportunities there are in America, the more money will flow here.

Of particular interest is the topic of carried interest on capital gains. Already I may have lost a few of you. Honestly, if you want to keep someone from talking to you on a plane, become an expert in carried interest on capital gains – it’s something no one wants to talk about, but you’re happy to let other people worry about if it makes you money.

I went into greater detail of the mechanics of carried interest earlier here, but to sum up: carried interest is the share of the profits earned by an investment manager on the long-term profit from your portfolio. Investment managers (for lack of a better term let’s call them, oh I don’t know, experts) uniformly reject higher taxes on carried interest because they dis-incentivize long-term investment planning.

Fiscal liberals, alas, think they know more than the experts.

Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) recently stepped into the ring to throw a few punches, at the experts condemning carried interest as a loophole for hiding money in a tax shelter.

No example could be clearer than carried interest. This loophole is a favorite on Wall Street, used by investment fund managers to redefine their income as capital gains and shrink their tax bills.

 Weird thing about a tax shield, is when you don’t like it you call it a “loophole.” But when you do like it, you call it something like a “favorable business environment.” Most glaring example: President Obama came down hard on foreign tax havens like the Cayman Islands, but picked a vice president from Delaware, the biggest domestic tax haven there is.

Tiny, unimpressive Delaware realized long ago that to stay competitive, it has to give people a reason to send them their money. And they found perhaps the best reason of all: they let people keep their money.

Geographic necessity forced Delaware to become the most conservative state on taxes. Neighboring metropolises like New York and Philadelphia could crush meaningless Wilmington. But instead companies fight to get a P.O. Box with a Delaware zip code.

Thanks to globalization, the same principle applies everywhere now. Wall Street is the No. 1 destination for money in the world, because investors know that New York will get them better returns than elsewhere. And we need to keep it that way. Leftist mobs’ endless demand for more regulation and higher taxes will not convince investors to pay their “fair share” — it will convince them to send their money to London, Tokyo, Dubai, Shanghai, or elsewhere.

Trust me, I live in Dubai. People love that they pay no taxes here. But they’re bracing for next year when they will have to start paying – wait for it — a 5 percent value-added tax.

See the same technology that makes everyone an expert makes it really easy to send your money to countries with taxes like Delaware. Most of Europe enjoys lower capital-gains rates than the United States, which has the sixth-highest capital gains tax rate among developed economies (at 28.6 percent). It’s an instance where we can be glad that we’re not No. 1 — that would be Denmark at a horrifying 42 percent (which explains why all those Copenhagen-based mutual funds are so popular these days).

Carried interest is not a devious “Big Short” loophole, and it’s an unfair prejudice to treat all investors as criminals. That’s tax-policy superstition. Millions of Americans are invested in long-term assets affected by carried interest, either directly or indirectly as retirement funds. Similar assets benefit endowments for universities, nonprofits, and pension plans. Carried interest helps carry our nation.

Wall Street is not the villain. It’s well past time to stop trying to demonize Wall Street and the investments that help millions of Americans.

Jared Whitley is political veteran with 15 years of experience in newspapers and Washington politics. He has served as press liaison for Sen. Orrin Hatch (R-Utah) and associate director in the White House under George W. Bush and has worked in the defense industry. He is an award-winning writer, having won honors from the Society of Professional Journalists and the Best of the West contest (2016). His works have also appeared in The Weekly Standard, The Daily Caller, The Salt Lake Tribune and Cracked.

The views expressed by contributors are their own and are not the views of The Hill.