When we were all getting worked up over whether the House and Senate would take up tax breaks for those making more than $250K and turn it into a great populist issue for the election, why wasn’t anyone talking about the carried interest exemption for hedge fund managers?
But then they went a step further and created the “carried interest” tax break. In this insane scenario, the income earned by managers of things like hedge funds, venture capital funds, gas partnerships and real estate partnerships would henceforth be taxed not as income but as “carried interest,” and “carried interest” legally would be taxed at the same rate as capital gains. The professional gamblers who manage things like hedge funds, people like John Paulson (you’ll remember him as the guy who worked with Goldman Sachs to cook up a toxic package of mortgages to dump on unsuspecting Dutch and German banks), typically get paid via something called the “two-and-twenty” arrangement. They get a two percent management fee (i.e., two percent of the big chunk of Other Peoples’ Money in their funds) plus 20% of whatever profits they make.
The bill to end this tax break was watered down in the House, further neutered in the Senate, and is now stalled. I don’t know what could be more popular than getting rid of an unjust tax break for a tiny slice of Wall Street billionaires, but I do know why Democrats aren’t making this a big campaign issue.