Respect For The US Senate, Now An Oxymoron

As we approach April 15th., otherwise known as Tax Day, it’s time once again to mention the staggering corruption of the US Senate, the world’s ‘greatest deliberative body’.

For well over three years (!) there has been an attempt to get rid of a loophole in the tax code granting hedge fund managers a lower tax rate than ordinary people who work for a salary. A gift that cuts their tax rate in half, assuming they even pay any taxes.

And what group is proudly standing in the way of tax reform? The US Senate, whose members are worried about damage to their own cash hoards.

The World's Greatest Body, Deliberating

Is corruption too strong a word? I don’t think so; especially at this time of year when I am writing my own check to Uncle Sam.

Riding high on the bank bailout, hedge fund managers posted record paydays in 2009 … the top 25 managers earned $25.3 billion in 2009 … [meanwhile] the government reported that unemployment was stuck at 9.7 percent, with 15 million Americans out of work … To add insult to injury, some hedge fund managers and, more commonly, private equity fund managers are able to pay a much lower rate of tax than the typical working professional.

The tax disparity results from an outdated rule that lets a money manager in a private partnership treat a chunk of his fees as if they were long-term capital gains, taxed at a special low rate of 15 percent. Fees for managing someone else’s money should be taxed as ordinary income, like wages and salary, at rates as high as 35 percent.

President Obama has included a provision to end that special treatment in his most recent budget. For three years running, the House has passed a bill to close the loophole. In the Senate both Democrats and Republicans have resisted, all for fear of losing lucrative campaign donations.

Source

It does get even better for the fund managers. What’s not reported, because it adds some complexity to the story, is that capital gains have another wonderful trait when it comes to taxes. Unlike ordinary income, capital gains can be offset with capital losses.

Then the tax rate goes to Zero.