Carried Interest Loophole: Is Anyone Still Defending It (for Free)?
posted by Frank Pasquale
The New York Times ran an excellent opinion piece yesterday on the bizarre carried interest loophole, tailor-made to nearly halve the tax rate for a tiny sliver of financiers:
Millions of general partners in investment funds receive carried-interest income when they earn profits for their clients. Since these partners do not have to risk any of their own capital, carried interest is really a taxpayer-subsidized fee for managing their clients’ money . . . . No other affluent Americans enjoy this benefit. A brain surgeon, stockbroker, corporate lawyer or actor will have to pay the new top marginal rate percent, while a general partner who manages other people’s money pays, on carried-interest income, only the 20 percent rate on long-term capital gains. . . . The difference in revenue to the United States government when this combined income is taxed at 20 percent rather than at 39.6 percent is about $11 billion annually.
I imagine there are plenty of think tanks happy to characterize this discrepancy as a reflection of (their donors’) wisdom and free enterprise at work. I vaguely recall some academics defending it years ago. But is anyone still doing so, given that we now know how lavishly the finance sector is subsidized, and how tax policy exacerbates inequality in so many other ways?