Tuesday, October 09, 2007

Spineless, II

Did you know that hedge fund managers pay only 15% income tax? What is your tax percentage? Well, if you happen to be a hedge fund manager earning loads of money and paying only 15% taxes on it, don't worry. The Democrats won't take your tax advantages away:

The Washington Post reported yesterday that Senate Majority Leader Harry Reid told private equity funds that they need not worry about Congress taking away their special tax breaks this year.

Just to remind folks, the equity and hedge funds benefit from two special tax breaks. Some funds operate as partnerships that have all the privileges of corporate status, including being publicly traded on stock exchanges, but don't pay any corporate income tax. In addition, fund managers, some of whom are paid hundreds of millions of dollars a year, only pay taxes at the low 15 percent capital gains rate, instead of the 35 percent rate that other high income workers pay. The Congressional Budget Office estimated that these two tax breaks together may cost the government as much as $6 billion a year in lost revenue, almost enough to pay for the S-CHIP expansion now being pushed by Congress.

The Democrats got donations to soothe that guilty conscience, I guess.

Even extreme right-wingers usually think that a regressive tax system is unfair. That would be a system where those who earn less pay a higher percentage of their incomes in taxes than those who earn more. But this is exactly what is happening in this specific case. The real problem is naturally that capital gains are taxed at a lower rate than income from work. This provides the incentive to argue that income from work is actually capital gains.

Let me see. Could I argue that all my working is really just observing the returns to my intellectual capital growing? Worth a try?