Your humble blogger will endeavor unpack the multi-layered kabuki battle brewing over the indefensible and mislabeled “carried interest” loophole. If you believe the press, Biden is taking aim at it. Since the carried interest abuse had supposedly been an endangered species for at least a decade, yours truly is not about to take the hissing and spitting about its imminent demise seriously until its death really does look, well, imminent.
The posturing and whinging about the fate of the carried interest loophole obscures the fact that money mavens would not find it hard to rearrange their affairs to preserve their economics. But it offends their view of their place in the universe to be told what to do. So bear with us as we pull the signal out of considerable noise.
Tax professional cringe when normies use the term carried interest in the manner that has become pervasive in the fund management industry. What is called carried interest in the US is not actually “carried interest,” which comes about when a participant in a deal borrows money (typically from other principals) to buy his equity stake. Instead, what the press widely calls carried interest is a profits interest that gets preferential tax treatment. As we explained in 2015:
The reason the “carried interest” label is a misnomer relates directly as to why it is also a tax abuse. Money managers like private equity and hedge funds enter into fee arrangements that include what the IRS calls a “profits interest” and a layperson would describe as a profit share. These firms enter into a prototypical “2 and 20” fee structure, meaning a management fee of 2% per annum of the committed capital plus 20% of the profits, usually after a hurdle rate is met.
Due to clever tax structuring, that 20% is taxed at a capital gains rate even though the managers have no or only a token amount of capital at risk (as in the investors generally require that the fund manager invest some of his capital alongside that of the investors, but it is typically in the 1% to 3% range, and in many cases, that amount isn’t actual cash, but instead a deferral of some of that 2% management fee, which by definition is excessive if the manager is in a position to defer it.). In other words, they are being taxed at a preferential capital gains rate on what by any commonsense standard is ordinary income and should be taxed at ordinary income rates.
To underscore the key point: the carried interest loophole allows private equity and hedge fund honchos to have their labor income taxed at more favorable capital gains rates. That preferential treatment is the reason someone going into asset management is twice as likely as someone going into tech to become a billionaire.
Biden Threatens to Slay the Carried Interest Dragon
The Wall Street Journal story, Private Equity and Hedge Funds, Facing a New Tax Burden, Prepare Their Defense, demonstrates that the fight over the carried interest tax break is following a well-established script, save a plot twist. Biden got far more support from private equity firms and hedge funds. Yet here he is, biting the hands that fed him! From the Journal:
Hedge funds and private-equity firms are among those that would be affected by Mr. Biden’s proposal, given his plan would get rid of lower rates on long-term capital gains for high-income households and end what the administration calls the “carried-interest loophole.” The moves would mean investment managers would no longer be allowed to pay a lower rate on a substantial portion of their compensation.
Lobbyists for the private-equity industry responded to the proposal by arguing it might do more harm than good. They said private investment has been beneficial to the U.S. economy, including investing in renewable energy and healthcare, providing jobs and supporting pension plans. The proposed taxes would threaten that investment, they said.
Understand what these lobbyists are asserting, because it’s a howler. They are trying to say, with a straight face, that investment in private equity might shrink because the pay levels for the top dogs might fall from egregious to merely embarrassingly lucrative. Or to paraphrase supermodel Linda Evangelista, “I never get out of bed for less than half a million a day.”
Pray tell, what could these Masters of the Universe possibly do that that would generate anything within hailing distance of what they earn now? Even if lower after-tax pay were a real threat, they’ve got nowhere to go, even before getting to perks like getting to push around investment bankers and top lawyers and fly private class. The fact that men that are unseemly wealthy like Steve Schwarzman and Henry Kravis are still working well into their 70s says it’s not for the money. They really like the job.
Naked Capitalism readers no doubt recognize the second strained claim, that private equity is good for the economy. The lobbyists have the temerity to talk about health care as if private equity’s involvement has been a plus, when it’s been the moving force behind surprise bills, rising ambulance prices, and finding and creating choke points in must-have services, like dialysis, by becoming mini-monopolists in target markets.
The majority of private equity funds go to buyouts, where the “value added” by the private equity funds is provided by leverage and other financial engineering and cost cutting. The industry had a better claim to being good citizens in smaller deals (size $350 million and lower) since private-equity owned firms do sport higher increases in profits than similar-sized companies. But is that because private equity firms managed them well, or simply because they are good at picking “growthier” companies?
The Reality Behind the Posturing: Private Equity Favored Status Not Threatened
The fact is that despite all the whining, private equity isn’t under any real tax threat, even if the private equity loophole is being cut back. As the Journal pointed out:
The 2017 tax law passed under the Trump administration contained a measure that affected the treatment of carried interest by lengthening the period that firms must hold an asset before it is eligible for the long-term capital-gains rate to three years from one. The change generally affected hedge funds more than private-equity firms, which tend to hold assets longer.
Hedge-fund strategies vary widely, but many are active traders with holding periods of less than three years. Still, hedge funds that engage in activism, invest in beaten-down or distressed assets, or invest in long-term plays like biotech companies, for example, can stay in their positions for years and would be hurt by carried interest’s elimination.
In fact, top tax experts have been telling private equity fund managers for many years that the carried interest loophole would be eliminated, it was just a matter of how long it would take. The same experts tell us that getting rid of the carried interest abuse isn’t a serious threat to these money managers’ incomes, because they can use other structures to achieve similar ends. That’s why the CBO scores the income from ending the carried interest tax break at only $14 billion over 10 years.
So why aren’t these funds getting out of the way of the inevitable, particularly since it’s not hard to imagine that the private equity firms’ tax gurus would find ways to cut the cake even more in the fund managers’ favor in the new tax gimmickry? They don’t want to be told what to do.
One top tax pro who has regularly spoken with private equity executives and their tax advisors says that aside from cussedness, the funds are also resisting dropping their carried interest related contractual provisions because as convoluted as they are, the limited partners have gotten comfortable with them (irrespective of whether they understand them or not). If nothing else, the limited partners, if they are doing their jobs (not at all a given), will be difficult as they wrap their minds around new terms.
Getting rid of the preferential treatment of capital gains is the biggest step Biden could take to reduce the income and wealth gap between the rich and the rest of us. That plus imposing a financial transactions tax would have the salutary effect of cutting the economically unproductive asset management business down to size. Sadly we are a long way away from seeing these changes implemented.
Yes using “carried interest” to create capital gains is a scam. But Biden is proposing to raise all capital gains taxes to 43.4% for individuals earning more than $1 million. That covers a lot of tech company founders and employees when they cash out. Quite a dis-incentive for many startups, I think. Throwing out the baby with the bathwater comes to mind. Comments?
So if a “startup” can’t make a quick and easy billion, why bother? Clearly more needs to be done to smash these phony Randian notions.
This is the problem – too many people in this country think they are entitled to be filthy rich and lord it over the rest of us without actually working. Taxing capital gains at a much higher rate would reduce inequality. It would also de-incentivize grift. We don’t need more WeWorks and Juiceros. It’s not like the billions people make from IPOs and private equity come from actual work. And if any white collar finance types think they deserve all the money they get because they worked so hard for it, I have a ditch that needs digging and a shovel I’d like to hand to them that might help get their minds right.
Why did the image of Kavanaugh’s outraged pout with the cheek capillaries blooming keep flashing in my mind as I read this piece?
Boo hoo, you’re taxing my million dollars!
Do you have any idea what a douche-nozzle you sound like to normal people? All I hear is “me and my friends are super greedy, what about that?” Answer: who cares? Why should we, the vast majority making two orders of magnitude less than your million a year, care two figs about what the marginal tax rates are for the super-wealthy? Do you have any idea what they were during the Eisenhower Administration? I say we got back to those. And if that’s a disincentive for tech start-ups, good! That’s a desirable outcome! We don’t need any more Ubers, or DoorDashes, or Googles. Silicon Valley produces more bads than goods. The less of their output we have to deal with, the better.
If it weren’t for these people, we’d all be living in cardboard boxes. They “create value” that serves to not only clothe and shelter us, but gives meaning to what would otherwise be dreary, aimless lives.
The less of their output we have to deal with, the better.
right? Who asked for a starlink? Mars? Prop 22? Self crashing planes? Total info awareness?
Food drenched in pesticides? GMO’s? needless to say, I could go on, and on, and on, and…
But yeah a tech bro worked pretty hard for a year and now deserves to be paid a lifetime worth of wages for that, plus a stock and housing market that is subsidised such that their lifetimes worth of money “goes to work” for them so there’s no risk of them needing to come up with another app.
Well, I’m asking for Starlink. I like the internet and Time-warner and Frontier both piss me off, although Time-warner hasn’t been TOO bad lately. Your overall point is fine though.
Every other developed country would like to point out that it’s perfectly feasible to have good internet without destroying space – because every other developed country has done exactly that.
Terrestrial is more reliable and better quality, and orders of magnitude cheaper. Harder to monopolise though.
Name a startup in the past 20 years which is both profitable and has improved people’s lives.
PayPal is a good one. It brought the cost of making international payments / currency exchange way down — before that, wiring funds or making foreign-currency transactions was cumbersome and expensive.
Paypal was started in 98.
And I agree it is a good thing.. as long as you get past the overt data mining.
Since 2001, I can’t think of many useful, profitable tech startups. I feel like it’s a lot of VC’s pissing away a lot of money on each other with not a lot of actual profit to show for it.
Growing Up, I was in the right place at the right time. My parent’s friend was an individual who set up one of the largest, most successful auto marketing survey company in the U.S. I used to mow and trim his lawns(both front lawn and backyard) and then chip in on placing quarters inside of survey requests that they sent out to customers daily. It was all done from the kitchen table in the small breakfast nook they had. I know it’s more than 40 years ago and was an example of how start ups worked back them. “Carried Interest” was not how they made their money; providing useful aggregated information from consumers without invading anyone’s privacy was their model to clients.
The company eventually went public. His is a story, hopefully like many others, that I think should be emulated. It primarily happened before the Reagan era, but maybe that is a model that we need to go back to? It was a time of passion and personal risk, community, and real capitalism for the common man. He was far from Randian btw.
JD Power? Car enthusiasts LOATHE and ridicule it. High rankings are bought-and-paid for; does anybody really believe Chevrolet is the highest-quality car on the planet? Google ‘mahk’ sometime if you want a few giggles.
ps. They now send a dollar bill with the survey–inflation–and pester and try to guilt-trip you into spending up to an hour to answer loaded questions.
I’m an enthusiast and jd powah has earned the scorn thrown at it by fabricating meaningless awards they sell to carmakers who then use it to justify inflated sticker prices and rationalizing the use of superfluous technology.
Consumer reports is a much better source for vehicle reliability outside if the warranty period, something JDP ignores.
So it was before 2001. Ok thank you.
The capital gains tax rate was 91% for most of the 50’s. I don’t recall seeing any seeing any metaphorical babies washing down the gutter nor did capital investment grind to a halt.
I don’t see 90% anywhere on this chart. Looks like the top cap gains rate was 40% for a few years in the mid 70s. It would be interesting to also see the actual taxes collected on this chart, but since the realized gains seem to increase with a lowering of the tax, I would not be surprised to see increased taxes collected with the lowering of the rate. The inverse might also be true. Comments?
Sorry I missed the Taxes Paid (solid red) in the chart. Looks like the cap gains taxes paid started to increase after the drop in the cap gains rate in the mid 80s and then again when the rate dropped in 1997 and 2003. I could be off by a year or so. My eyes are not as good as they used to be :)).
I like to give the example of two individuals well known in the Silicon Valley.
They founded a company in 1939 and then waited a while to do an IPO, in fact 18, yes 18 years, until 1957.
Even when I started working for this company in 1978, the two founders still held onto about 40% of the stock.
The company is Hewlett-Packard.
One way to avoid paying capital gains taxes is to NOT sell one’s stock because one believes the company is a long term source of value.
Holding onto the stock might cause one to have a long-term focus on the company rather than a “pump and dump” attitude.
High capital gains tax rates could have this secondary benefit.
I suggest that not only income but the length of time an asset is held should figure in the tax schedule. If someone builds something over 10, 15, or 20 years the capital gains tax should be less than if the same individual realized the gain in less than 5 years.
i love the won’t stay bought quote, think i read that re teddy roosevelt from john archbold re trust busting .
wonder if biden really will be a guy that just does what he wants and gets it done, marginally “fix” a few things and be declared a hero.
you’ve got it backwards, first he’ll be declared a hero, then anything he does will be heroic.
I still think it crashes this summer, like a rock, the top 10% just do not understand how little money the rest have. They are cashing checks now, but the funds are not in the account. This summer according to the elites is going to be the best summer ever, not surprisingly because trump. They have not grokked that 6 industries have divided up americas income into payments to themselves,…30-50% for housing, 30-50% for health insurance, 30-50% for food, 30-50% for transportation, 30-50% for student loans, 30-50% for entertainment (i guess this is where all your phone, internet, and etc…falls), and all the excess (30-50%?) should be invested in stocks, if you’re aspirational, that is…
Now a normie looks at that and says it doesn’t add up, but the elites are smart and maff is different for them it’s addition by subtraction. Move fast and break things. The current iteration of capitalism is all about losing money, breaking society, then getting paid back by the gov for a job well done…
Our complicated tax code is one of my greatest frustrations. It’s ridiculously complex and subjective, seemingly written by tax lawyers for the exclusive benefit of themselves and their wealthy clients. It also seems nearly impossible to enforce. I’ve always wondered if it wouldn’t be better to replace it with a national sales tax, applied equally to individuals and corporations, where the government takes a cut whenever money changes hands. If the sales tax were applied to everything without exception, I imagine its rate could be so low as to be considered nominal. I feel like a national sales tax could take the irrational exuberance out of the markets. The tax would be applied upon purchase and sale of stock, regardless of capital gains or losses. Fundamentally I think we’d have a lot fewer problems if we applied the same low tax rate to everything. Instead we apply a variety of high rates to a small and subjective subset of moneys, which invites endless lobbying and abuse. While a national sales tax wouldn’t have progressive, means testing features, it would be easy for everyone to understand, treat everyone the same, be easy to enforce and difficult to avoid.
MDA…would that be like a Value added tax on purchases similar to some other countries? I like the idea of a VAT as in theory it is easier to compute and collect. US tax code is an unintelligible mess spawning high priced lawyers to loop de loop around areas that impact high earners. Can someone give me more direction/insight on why the US has not moved to a VAT and what the political obstacles are?..Thanks
Honestly I’m thinking straight sales tax, so it’s a low rate on an easy to track denominator. VAT seems like high tax rate on profits, which drives companies to lobby for exemptions and conceal the profits they enjoy.
VAT is a sales tax. In Canada it’s called the GST (Goods and Services Tax) a federal tax with the rate currently at 5% (when it came out GST stood for gouge and screw tax and it was 7%) and some provinces have harmonized their sales taxes with the federal government, so for example in Ontario the combined sales tax is 13% – 5% federal + 8% provincial.which is called HST for harmonized sales tax
During the “chain of production” the input steps that are taxed become offsets to the tax due.
For example a retail store charges $100 for something and the sales tax is $13. The retailer bought it for $50 and paid $6.50 in tax which becomes an “input tax credit” and that difference of $6.50 is then remitted to the government, but it isn’t that cut and dried. Other sales taxes that the retailer incurred during operations such as for phone, heat and power also become input tax credits, so the final tax depends on more than just the difference between buying and selling something.. From raw material to in the customer’s home everybody has been conscripted to be a taxman and tax calculator.
There is also a dog’s breakfast of tax exempt items and some things are taxed by one level of government and not the other, there is some relief for low income households and sales to other provinces have different rates and sales to foreign countries do not have a sales tax.
This is all besides whether the company has taxable profits, or not.
doubtful it would be that low. total government spending is how much of the US economy? and how much of state and local spending is tied to them? and then there is the recession effect, when you need government to spend the most (just check a few states with no income tax to see how revenue crashes. and for all of the claims of being low tax states, they arent. and for all of those who just want to cut spending, remember every one has what they consider wasteful spending, it just doesnt line with every one else’s version
and then there is thicket, government cutting spending, while almost all business is too. is a prescription for a bad recession or a depression.
treat everyone the same MDA
If we’re going to have equal protection under the law, we need to start with finance, not taxation.
In other words, as long as we have government-privileges for finance, which typically favor the richer at the expense, one way or another, of the poorer, then it is morally absurd to tax everyone at the same rate.
I would suggest that taxing everyone and everything at the same rate is, in a sense, the most equal treatment possible. I’d love to see the entire tax code fit on a single sheet of paper. Of course, at the same time I’d also advocate government provision of what I would consider public goods, including UBI, healthcare, education, clean air & water, police & emergency services, internet connectivity, transportation infrastructure & public transportation, legal infrastructure, trade infrastructure, safe food & drugs, etc. When people give other people money in exchange for services or goods, including equities, I’d say tax it all the same.
Of course, treating everyone the same does not equalize the actual burden of the taxes borne. John Stuart Mill thought income taxes should be progressive because lower income groups would be giving up necessities to pay their taxes whereas more wealthy people did not. Given what are necessities today, his argument continues to make a lot of sense.
Taxing everyone with the same rate is not, in fact, the most equal treatment possible, because of the diminishing marginal value of money.
The taxation model most worthy of. consideration is FDR’s proposal to tax all income above $25,000 at 100%. (That’s about $400k in today’s dollars.) I’m sure something can be done to house the poor, adversely affected billionaires.
Yes, horribly complex. But Vat is anti-progressive, bad for the poor, good for the rich.
Remember the best use for fed taxes is to reduce inequality, fed does not need to tax to spend. So the progressive income tax we used to have did a good job of equalizing pay. Just the rates under Reagan, much less those under Eisenhower, did a good job of that. It’s worth noting that growth rates have steadily declined along with marginal tax rates, so their is no evidence for the position that higher taxes hurt growth, if anything it’s the reverse.
Beyond that, a very simple rate for corporations was tried in Ca, but forced by feds, I think, to do away with it. It was very simple, you only needed three publicly available numbers: the corp worldwide profits and sales, and the Ca total sales: so the Ca Corp profits = Ca sales/ worldwide sales x worldwide profits. An army of accountants/lawyers were not required. Of course, that was the problem – it was too simple to cheat.
A sales tax on fossil fuels at point of extraction, IMO. Pretty easy to enforce, no loopholes, and the market distortions make the system MORE efficient by internalizing externalities.
course every thing taxes, sales and VAT, then any service would have a sales tax (1 or more, while vat cover every thing else. plus you have to tax stocks and bonds at sale time
The previous administrations have attempted to empty the ocean, but have disingenuously done so while restricting themselves to using only a coffee mug. The current administration, on the other hand, has vowed to use a backhoe and a dump truck to accomplish the job. Pundits comment that finally someone is taking the ocean-emptying issue seriously…
I had not heard Yves’s definition of carried interest (an equity stake funded by borrowing before).
My understanding was that it stems from the fact that the much smaller – but still real – equity interest in the partnership carries an additional entitlement to 20% of profits.
The whole limited partnership carry structure supposedly has its origin in Texas wildcatting days, when the silent partners would supply the bulk of the funds and give the active prospector a profit share on those funds if he struck, er, oil. It was picked up by VC in the post war boom and then by private equity (née leveraged buyouts). Clearly the risk has gone down and the financialisation has gone up as the carry virus has moved between hosts.
However, it is not an unreasonable structure in principle, that the promoter of a risk-taking investment should have a share in the profits and that share should be capital (because that is what is being divided among the partners). If the promoter worked for free, it would just be investors dividing exit proceeds. It is a fundamental principle of partnership accounting, at least in the UK, that the partners can decide from time to time the income share proportions among themselves and that the treatment of capital proceeds follows the income shares. PE limited partnerships have the same income shares (as a first degree approximation) as for capital gains, they just avoid making income if they can so they are only sharing capital gains.
The abuse of carry is that the general partner has an undersized GP commitment in PE, which could be fixed by requiring the GP commit to be related to fund capital including fund and portfolio company leverage. This would reduce the desirability of leverage. The same approach could be taken with the carry, limiting the capital gains treatment to the proportion funded by equity commitment.
There is no leverage in VC so the abuse is not as great. The ability to commute fees to fund the carry is essential for first time funds, where partners agree to live on bread and water to convince the investors they are in it for the upside and not the salary.
In the UK, base cost shifting, where the profits of the carry partners could deduct the costs of the limited partner, has been prohibited. The full value of the gain is taxable. Carry is also now taxable at the highest rate of CGT. Previous it could be structure to pick up the LP cost base and qualify for reduced rates of CGT aimed at entrepreneurs selling family businesses or benefitting from rates that taper down. This stopped after a very solipsistic private equity Titan announced he was paying a lower tax rate than his secretary….
Interesting that about carried interest and the Texas wildcatters. Those guys actually took a risk. Similar to ship owning during colonial times. Ten or twenty locals would go in together on coastal trader or ocean going vessel. If a ship never returned, well they didn’t lose it all. It’s different nowadays inasmuch as these PE and Hedge Fund guys are totally risk-averse and prefer asset stripping as a business model.
No, you are missing my point which I spelled out clearly, that the term “carried interest” as applied in the funds management industry is improper despite its widespread use. Tax experts use the correct term, “profits interest,” for what is informally and incorrectly called “carried interest.”
As for venture capital, you seem unaware of the widespread use of management fee waivers
A carried interest is funded by borrowing. That is how it is defined and treated in the UK.
I also have trouble with your depiction of venture capital firms as barely able to get by on their management fees. General Atlantic has $31 billion under management. You don’t get to a $3 billion fund until you get to the 20th largest firm. These firm are all big enough that they are likely to be using management fee waivers to get capital gains treatment for some of their management fees.
You also seem unaware of the skimming of fees directly from portfolio companies. The “monitoring fee” which Oxford professor Ludovic Phalippou has described as “money for nothing” is usually 0.6% of the invested dollars per year. And those fees are set up to accrue and be paid at the fund manager’s convenience if the company is short of cash or they want to shift payment of fees to a period when the company has high revenues (and yes, under accrual accounting, the fees ought to count as expenses when incurred, but oddly that seems not to happen in practice).
I had a long comment but it vanished.
Brief version, I will defer to Yves on US structures but in the UK, the definition of carried interest (e.g. the British Venture Capital Association / HMRC memorandum on taxation of carry) does not require the carry partner to have funded it with borrowing.
Large established fund managers are stacking funds and farming fees, I agree, and swapping these fees for increased capital interest is tax arbitrage. However, first time fund managers without great private wealth can legitimately (part) fund their 1% GP commitment by foregoing fees, especially in VC.
so the fed creates money. banks create money. leverage creates money. Congress creates money.
well so to speak.
taxes destroy money
So the question is where and how should policy makers take money out of the system once it has served its objective(s)? Or is taking money out of the system its own objective?
e.g. if a trillion dollars is created out of keyboard magic and policy makers decide after a fashion to “take back” via taxes 750 billion. the primary benefactors of that original trillion dollar investment are still ahead. Aside: With leverage and magic keyboard loans do we have a real clue as to how far ahead they are? Is society as a whole ahead with magic keyboard accounting “wealth” standards or losers?
So the complaint re: taxes in general and carried interest loophole is that the “take back” should remain where it is (lower tiers of the financial pyramid through taxes, fees and lesser quality of life) even though the magic keyboard directly infuses most of it’s resources toward the top of the pyramid to maintain systemic games. And the system itself is not limited in its ability to create or play other games.
So not only should the original benefactors be able to keep most of what they were given or extracted but any take backs should be extracted from lessor benefactors or even victims of the game.
Is that the argument?
I love the industry’s argument that if the GPs don’t get a tax break the LPs will invest less in private equity.
Really? The LPs invest for the purpose of giving GPs tax breaks? Here all this I thought the LPs’ interest was making money for themselves.
The period required for capital gains tax treatment should be taken from a few years to at least 10 years.
Stop subsidizing speculation.
Thanks for this post. Not holding my breath. This sounds good on the face of it. However, this is the Biden admin with deep and long standing ties to big finance and Wall St. A couple other Biden proposals, elimination of international corporate tax games, co-ordinating with other countries to standardize interantional tax stuff, and higher taxes on the wealthy (even if not by much and still within the 20-40% range that’s existed since 1980 I think), all sound good on the face of it. I’m skeptical enough to think the leopard (and his neolib owners) has not changed his spots, and image there’s another card up B’s sleeve we haven’t yet seen.
Shorter: I’m skeptical enough to think if he really follows through on this it will be to standardize the US tax system to a quietly forming global corporatist agenda. If he doesn’t follow through it will be another exercise in “fighting for you” but somehow never winning. (I’ve been fooled too many times in the past by Dem promises they’re on Main Street’s side. Too cynical?)
It’s funny, but I seem to remember reading that the original intent of Federal income taxes in America was to tax nothing but unearned income as taxing wages was regarded as somewhat crazy.
Can anybody confirm that?
Warren Worth Bailey led in framing the U.S. income tax law of 1916, which exempted most labor income and targeted land rent.
More background on how the vested interests inverted Bailey’s original intent of not allowing land value depreciation and their success at keeping the concept of unearned income invisible –
From its author – “The cumulative effect of those changes has been to utterly transform the income tax. A tax on the privileges of the idle rich (“idle” meaning with unearned income) has become a tax on the necessities and earnings of the working poor.”
A good question is how Chuck Schumer will respond to changing the capital gains rate.
“But there is another way Mr. Schumer has been busy with hedge fund and private equity managers, an important part of his constituency in New York. He has been reassuring them that he will resist an effort led by members of his own party to single out the industry with a plan that would more than double the taxes on the enormous profits reaped by its executives. ”
“But in the case of the tax proposals, the strategy behind Mr. Schumer’s efforts is putting to the test another set of principles he is known for. He has regularly portrayed himself as a progressive politician who identifies with the struggles of the middle class and is sharply critical of the selfish “plutocrats” who he says control the Republican Party.”
Which Schumer will manifest?