Usually I stick to big broad themes. Not today. Today’s post is more targeted, and this is personal. I know this stuff because I am a Registered Investment Advisor, and tax loopholes infuriate me. And in a few moments, you ought to be angry as well.
As we all know, Republicans refuse to talk about raising taxes on anyone. They are happy to cut programs for everyone – the poor, the middle class, college students – but don’t dare ask the wealthy to share the burden in any way. (Oh, wait – as John Stewart so brilliantly showed with a flurry of TV clips, Republicans are not allowed to call anyone “wealthy” any more. No, they must be called “job creators.” Ha! That’s another story for another time.
You probably don’t know about something called “carried interest.” As you can read in the linked articles, these loopholes allow some of the super-wealthiest Americans – hedge fund managers and others employed in the game of moving money around – to enjoy lower tax rates than you and I pay. As the New York Times reports:
“These fund managers are compensated mostly with a performance bonus of 20 percent or more of the profits they make. Under this carried interest loophole, that 20 percent is eligible to be taxed at the long-term capital gains rate (if the fund’s underlying assets are held long enough) of just 15 percent rather than the regular personal income rate of 35 percent.”
Got that? While you are paying up to 35% on the income you earn, these guys pay only 20%. I would be thrilled if one of my Republican friends can explain to me (and I’ll post it on my blog) how this helps America in our time of need.
I live in this world. I understand compensation for performance. This is a total tax scam. Period.
As bad as the carried interest loophole is, this might be even worse. It primarily affects day traders and speculators who buy and sell futures contracts.
Read this, and explain to me why this is fair to you and me…
“For years, futures contracts, which are essentially bets on the price of commodities, stock indexes and the like, have received a more favorable tax treatment than stocks. A trader who buys and sells an oil contract in less than a year — even in a matter of minutes — pays no more than a 23 percent tax on the profits.”
Again, you and I, and all my clients, must pay 35% for any profitable investment held less than 12 months.
America’s greatest investor sums it up nicely…
“There are so many ways to attack the logic of it,” Warren Buffett, the chairman of Berkshire Hathaway said in an interview …”It doesn’t make sense.”
While Democrats are not blameless in developing these loopholes, predominantly it has been Republicans who fight hard for these loopholes. (Yes, it looks like some loopholes may be closed in the current negotiations, but rest assured the GOP will push to reinstate them ASAP.)
So the biggest question is – why does anyone in the middle class support the politicians who vigorously support these policies?
As always, here are links to my source material:
Day Traders and Speculators