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Will Congress Finally Tax the Billionaires?

May 27, 2010

Wall Street tycoons get taxed at lower rates the the people who clean their buildings. Congress might be about to change that

By Robert Reich

Who could be opposed to closing a tax loophole that allows hedge-fund and private equity managers to treat their earnings as capital gains – and pay a rate of only 15 percent rather than the 35 percent applied to ordinary income?

Answer: Some of the nation’s most prominent and wealthiest private asset managers, such as Paul Allen and Henry Kravis, who, along with hordes of lobbyists, are determined to keep the loophole wide open.

The House has already tried three times to close it only to have the Senate cave in because of campaign donations from these and other financiers who benefit from it.

But the measure will be brought up again in the next few weeks, and this time the result could be different. Few senators want to be overtly seen as favoring Wall Street. And tax revenues are needed to help pay for extensions of popular tax cuts, such as the college tax credit that reduces college costs for tens of thousands of poor and middle class families. Closing this particular loophole would net some $20 billion.

It’s not as if these investment fund managers are worth a $20 billion subsidy. Nonetheless they argue that if they have to pay at the normal rate they’ll be discouraged from investing in innovative companies and startups. But if such investments are worthwhile they shouldn’t need to be subsidized. Besides, in the years leading up to the crash of 2008, hedge-fund and private equity fund managers weren’t exactly models of public service. Many speculated in ways that destabilized the whole financial system.

Nor are these fund managers especially deserving, as compared to poor and middle-class families that need a tax break to send their kids to college. Nor are they particularly needy. Last year, the 25 most successful hedge-fund managers earned a billion dollars each. One of them earned 4 billion dollars. (Paul Allen’s personal yacht holds two luxury submarines and a helicopter. Henry Kravis is one of the wealthiest people in the world.)

Several of these private investment fund managers, by the way, have taken a lead in the national drive to cut the federal budget deficit. The senior chairman and co-founder of the Blackstone Group, one of the largest private equity funds, is Peter G. Peterson, who never tires of telling the nation it faces economic ruin if deficits aren’t brought under control. Curiously, I have not heard Peterson advocate closing this tax loophole as one way to further the cause of fiscal responsibility.

Closing tax loopholes for billionaires may seem like a no-brainer, especially at a time when the nation is cutting back spending on the middle class — slashing budgets that fund child care, public schools, and public universities. Tens of thousands of teachers are getting pink slips.

But you can expect a huge fight.

There is also a moral issue here. Call me old fashioned but I just think it’s wrong that a single hedge fund manager earns a billion dollars, when a billion dollars would pay the salaries of about 20,000 teachers.

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One Comment
  1. The Destructionist permalink

    In light of the BP oil calamity it’s quite obvious that something must be done, and fast, if we are to save our world from corporations that would prefer to place huge profits above that of our environmental and financial welfare.

    As large corporations gobble up smaller corporations in an attempt to seize an even bigger piece of the global economic pie, it seems that businesses have been allowed to grow, unfettered, into unwieldy corporate behemoths (a.k.a., British Petroleum) with little, if any, regulations regarding their obligations to national sovereignties or allegiances.

    Maybe it’s just me, but I believe that if a corporation begins its “life” in a particular country, than it has an obligation to that country and its people: due in part to the patronage of its citizens throughout the years in helping that corporation to grow. When I hear about American businesses pulling up stakes and moving to other countries in lieu of cheaper labor and supplies elsewhere, I feel both embarrassed and betrayed. (They would be nothing if it weren’t for people like you and me. After all, we purchased their services, time and time again, fostering them constantly by giving them the opportunity to flourish. Our final reward for all our efforts? Millions of fellow Americans out of work, all desperately hoping that their unemployment benefits never run out.)

    I agree that the bad news is not just happening here in America, but around the globe. I blame that on the evolution of the business model: over the years, it has been compressed into a precise science in an effort to squeeze every last drop of profit out of the proverbial “bottom-line.” I began to notice the change in the late 1970’s when I was in my teens. Back then, it was a different world for me and I didn’t seem to care too much. Today however, it is a different story.

    What can we collectively do as Americans?

    Contact your representatives in the House and Senate. Let them know that

    big business should be regulated and ask them to enact laws to:

    1.Ensure that all corporations “born” within the United States deter from any and all actions that would adversely affect our country;

    2.Place high tariffs on imports from American businesses that move their bases of operations (not to mention our jobs) to other regions of the world;

    3.Work to limit their corporate power and influence in Washington D.C. by passing laws whereby politicians, found to have ties with said corporations or corporate lobbyists resign.

    4.Endeavor to ban all corporate favors and corporate lobbyists from Washington D.C.

    Essentially, it’s up to us to fashion our own future. If we don’t, rest assured that someone, or some corporation will.

    •(I know that BP was not born and reared here in the United States. I was merely using it as a reference as to what corporations are capable of doing if left to their own devices.)

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