It's a Question of Fairness

Money managers at private equity funds, aka "hedge" funds, benefit from a tax loophole that allows them to treat the bulk of their generous earnings--including the lion's share made up by fees--as long-term capital gains, taxed at a rate of 15% instead of the 35% they would pay if taxed along with their high-earning peers in businesses and professions other than private investments. The NY Times addresses the issue in this editorial as did James Surowiecki in a New Yorker article a few weeks back.

Rather than restate what other writers have already said better than I can, I will instead reproduce a letter on the subject that I've written to my North Carolina senators, Richard Burr (R) and Kay Hagan (D). I encourage all of you to use the Contact Your Elected Officials link in the sidebar to send a similar letter to your representatives in the Senate. Feel free to cut and paste my letter and modify it as you see fit:

Dear Senator:

It has come to my attention that the managers at private equity funds are subject to a uniquely beneficial tax loophole that allows them to treat the bulk of their income as capital gains, taxed at an absurdly low 15%, even though the money on which the gains are realized is not their own and their income is, in reality, a commission fee, not different in kind from the commission a car salesman receives from an auto dealership upon closing a sale on a used car. The used car salesman’s income is taxed like any other earned income, so why not the fund manager’s?

If you have not read the editorial on the subject in the April 3 issue of the New York Times, I encourage you to do so. That piece indicates that the hold-up to closing this loophole lies in the Senate, the House having already more than once approved measures that would address the problem. You need to take action on this. See to it that a measure closing this tax loophole is brought to a vote, then vote to approve it. Quite simply, it is a question of fairness. How can we take seriously your efforts to better regulate the financial industry so as to prevent future financial and economic crises when you cannot take simple action to see to it that some of those very same individuals who contributed most to the crisis of 2007/2008 are not asked to pay their fair share to the very government that benefitted them so handsomely with bailout money?

I am watching your votes, and I am publicizing this letter and your actions on my blog, www.onedigusteddemocrat.blogspot.com.

Kind regards,

Aaron Walton