Avoid the Sequester with Real Balance

The discussion around averting the sequester brought the following comment.

From elfish as a comment on Huff Post:

""Notably absent from the revenue component of the bill is a hike in the tax rate on carried interest, the income stream for financial managers."

If people really understood "Carried Interest" deductions, they'd demand that it be stopped.

It is gives a Big Tax break to people who don't deserve it and have done nothing to earn it:

1. CARRIED INTEREST. Carried Interest allows ordinary income from management fees to be taxed at the capital gains rate of 15% instead of the top marginal rate of 35%.

2. CAPITAL GAINS ENCOURAGES INVESTMENTS. Because investments are risky things to do, the government wants to encourage investment by lowering the tax rate on people who make money by investing. Normally, you get Capital Gains tax rates when you invest your own money and put your own money at risk.

3. FUND MANAGERS RISK NOTHING. But Fund Managers do not risk their money and neither do the companies they work for. The people who risked their money are the ordinary investors that put their money into the hedge funds. They are the ones who should get the deduction.4. CARRIED INTEREST TRICK. Fund Managers get the Capital Gains tax rate by using an accounting trick called "Carried Interest." The "Carried Interest" trick allows ordinary income from management fees to be treated as Capital Gains.

5. SUBVERTS THE PURPOSE OF CAPITAL GAINS. Since Fund Managers are not risking their own money and instead are risking his clients money, their clients are the only ones who deserve the Capital Gains tax rate. Capital Gains rates are not meant to help fund managers because they aren't taking any risks and that doesn't encourage increased investment.

6. NO DOUBLE TAXATION. Fund Managers justify their the low rate of taxes because by saying that "the money is taxed twice." That simply not true.

A. First, the money that Fund Managers receivs uses another accounting trick called "Pass Throughs." "Pass Throughs" allow money to be funneled to managers without paying any corporate taxes.

B. Second, as the CBO points out, 60% of US Corporations pay no taxes. If a corporation pays no taxes, the money can't be taxed twice.

Companies like GE, Exxon, Coors/Molson, Liberty Media and Well Fargo paid 0% taxes on Billions in profits. Even those that do pay taxes, pay such a low rate that it might as well be zero. For example, Google paid 2.4% taxes on $8.68-billion profits.

7. DOESN'T ENCOURAGE INVESTMENT. Carried Interest doesn't encourage investment. In fact, just the opposite. It encourages the fund managers to charge higher fees. The higher the fees they charges, the more money he can shelter from the Top Marginal rates. That encourages HIGHER FEES."

There is more to it that the Dem's can do... first to do is to get a plan out there to counter the Idiotic Republican non-plan.