http://blogs.usatoday.com/oped/2008/10/in-ways-large-a.htmlIn 2007, the top 50 managers of hedge funds and private equity firms earned an average of $558 million, according to Alpha magazine. (Really. That's not a typo.) Despite having incomes equal to the output of some small countries, many of them paid a lower tax rate than middle-class Americans.
How can this be? Through a complex sleight of hand known as "carried interest," they pay just 15% by masquerading their income as capital gains.
Last year, when some in Congress proposed ending this practice, they drew quick support. Then the private-equity lobby went into full mobilization. It hired multiple lobbying firms, spread around campaign contributions and created advocacy groups passed off as broadly based trade associations. The proposal went nowhere. Cost to taxpayers: $2.7 billion a year.
Whether investment income should be taxed at a much lower rate than earned income (15% vs. a top income tax rate of 35%) is a matter of considerable debate. Encouraging investment does help generate economic growth. But the argument ignores the fact that lower capital-gains rates mean higher income taxes on labor or more borrowing from future generations.
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