Private Equity Moves From Buying Companies to Buying People

The private equity community is preparing a defense of the 15% carried interest tax loophole that relies of big names and celebrities to defend themselves.

i was particularly taken aback by this article in the Wall Street Journal today.

It seems that the private equity lobby is now preparing to pay off everyone possible to get them to campaign to keep Congress from closing the unintended loophole that allows industry participants to receive compensation in the form of carried interest and thereby pay only the 15% long term gains tax treatment, as opposed to paying tax on their earnings at ordinary income rates the way that all other US citizens and US residents do.

It seems to me patently clear that this tax treatment is patently unfair and violates the principal fundamentals of a tax system - that tax should be applied equitably.  The argument that a lower tax rate allows private equity to invest in minority communities is absolutely absurd.  I don't buy it if it comes from Magic Johnson, Robert Johnson or god.  These ultra-wealthy private equity folks would gladly do the same job and make the same investments if they pay taxes at the same rate as the rest of us, and the extra tax revenues can be used to directly stimulate investments in less advantageous areas.

I guess Magic can be bought like everyone else.  Hats off to Charly Rangel and some other Democrats for standing up to this.  I hope that they close this loophole - it is the first real test of the stamina of the Democratic Congress.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • Jim Petrokas

    September 06, 2007

    These folks are not investing their own money, but it is compensation and should be treated as such. the Republicans really think that everyone is stupid when they talk about unintended consequences of a tax law change - the tax law can be quickly and easily changed to fill the loophole without any unintended consequences.

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