Making Private Equity/Hedge Managers Pay Same Tax Rate as Rest of Us Seems Ridiculous. Doesn't It?

Congress, looking for sources of revenue, happened upon an extraordinary loophole enjoyed by the extraordinarily rich private equity and hedge fund managers, effectively allowing these managers to pay taxes on their earnings at a 15% rate. Pretty nice for people making hundreds of millions a year. While this looks like a simple fix, long overdue, there isn’t much support for it in Congress – on either side of the aisle!

This is not sour grapes. Making a whole lot of money (tons of millions) is not a bad thing – and good for them. But, being taxed at a rate less than half the normal rate is unfair and inappropriate. Of all people, these folks can pay at the regular rate and hardly notice the difference.

The argument by those who defend this practice is that the incentive of lower tax rates is what has driven these people to take risks and to make the money they have. The argument goes, further, that it is essential to have such incentives if the economy is to grow and our society is to prosper. This is over the top, obviously. It is patently silly to think that these guys wouldn’t be founding, managing and building these funds were they to have to pay taxes at a 35% rate.

But these are the very arguments being made by Bush officials and many other Republicans. But, it is even more wonderful to know that a whole host of Democrats – household names – are fighting against changing the tax rate for these people. As the New York Times points out today, hedge fund managers are among the largest contributors for political campaigns and that most of their contributions have gone to the Democrats.

Our Congress is working for us all!