The carried interest loophole for millionaire traders is the perfect example of the tax breaks the GOP is risking recession to protect

This is why Mitt Romney pays a lower tax rate than you do

6836788437_c15dd5814bI’m about to shock you.

Read this: “Skewing income toward the upper, upper class hurts our economy because the rich tend to sit on their money — unlike lower- and middle-income people, who spend a large share of their paychecks, and hence stimulate economic activity.”

Guess who wrote it?

A Republican — the same guys who now won’t take credit for the sequestration cuts they won. And not just a regular Republican, the Republican woman who George W. Bush picked to run the FDIC — Shelia Bair.

In 2013, it’s nearly a miracle when someone who identifies as a Republican dares to state common sense.

But Bair didn’t stop there in her recent op-ed for the New York Times “Grand Old Parity.” She called on the GOP to end the tax breaks we give to hedge fund managers that allow them to treat their income as investment income — a heinous exploitation of the tax code that has been protected by Republicans and a few Democrats due to the outrageous amount of money the financial industry spends on lobbying.

Bair says it needs to stop. “…Republicans should put fundamental tax reform on the table and make it our priority to end preferential treatment of investment income, which lets managers of hedge funds pay half the tax rate of managers of shoe stores,” she wrote.

This protection for millionaire and billionaire hedge fund managers costs America up to $13 billion a year. That’s not enough to replace the $85 billion in cuts in the sequestration that will cost us 750,000 jobs. But it’s a huge start.

But this is the issue we face. Republicans won’t even considering ending this tax break — or tax breaks for big oil, people who own corporate jets or any tax breaks. They insist that letting the Bush tax cuts expire for income over $400,000 was enough new revenue forever and the only tax reforms they’ll allow must lower rates.

Basically, the GOP is protecting tax breaks for those who need them least and making cuts to a middle class that’s suffering. And while they used to say that this would grow the economy, they’re now admitting that it will hurt the economy by blaming the president for the sequester.

Remember: This isn’t just punishment for electing President Obama. I believe this is the GOP’s strategy for 2014. They recognize that what was behind their victory in 2010 wasn’t the Tea Party or Obamacare, it was the terrible economy.  So anything they can do to protect their billionaire base while hurting the middle class is a win for the sad thing we still call the Republican Party.

The only good news is that Americans seem to noticing what the GOP is pulling. Their approval rating is lower now than after the Iraq War or the worst of the financial crisis, according to PEW. And 62% say they’re “out of touch.”

2-26-13-4

But any time this party’s approval rating is above 1%, we all know someone in being fooled.

[Image credit: DonkeyHotey]
  • jpe

    the estimate of tax revenue is double what it is using the numbers in the link. the carry earned by hedge fund managers is already taxed mostly at top marginal rates, so the additional income from converting carry to comp would be minimal (and may actually be negative)

    • Bob

      Stop being so logical! Focusing on the tax rate paid by Buffet or Romney makes eye catching headlines but not alog of meat on the bone

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  • Grammar police

    But this is the issue we face. Republicans won’t even considering ending this tax break — or tax breaks for big oil, people who own corporate jets or any tax breaks.

    You had me until considering.

  • Peter G.

    “…the rich tend to sit on their money”

    How do they do this? Do they literally sit on their money? Is their furniture actually made of $20 bills? Because if it isn’t– if they deposit their money in bank accounts, invest it in the stock market, use it to create small businesses, and pay it to their personal servants– then they aren’t sitting on it, and this whole article is nonsense.

    And you know perfectly well the rich don’t use their cash to make furniture. They spend it and invest it. The question is, does money from the rich go through more hands before it’s all used up? This is what economists call the “velocity” of money, and the simple fact is that money that goes back into the economy at the top of the economic food chain has more velocity than money at the bottom.

    So yes, this whole article is nonsense.

    • rctla

      You know very well that what you refer to as “investing” is what the writer means by “sitting on it” and also that this act has far different consequences on the overall economy than “spending it”. Don’t be deliberately obtuse.

      • Bob

        No one is being obtuse. Sitting on it would imply that there are no good consequences of the action. Investing certainly has positive consequences which are just as good if not better than spending it. How do you think businesses finance themselves?

    • http://www.facebook.com/donnie.maillet Donnie Maillet

      you don’t get it. they are not spending it or investing it, they are sitting on it waiting for the GOP to get elected again so they can cash it in and not pay taxes on it. it’s sitting in offshore accounts, in personal and business accounts. or they throw it into commodities and jack the prices up so we all pay them a vigorish when they pull it back out. they aren’t helping the economy, they are stealing from it. your post was nonsense.

      • Bob

        No. Even my money that “sits” in my savings account creates more deposits that a bank can lend out. So it does help the economy. And if by offshore accounts you are thinking hedge funds, that money is invested by the managers which is how companies fund their operations, by issuing debt and equity to institutional investors. And if I decide to buy commodities, there’s just as good a chance the price goes down or up. But in no sense am I “stealing” from the economy.

        • http://eclectablog.com Eclectablog

          Wow. You are in serious denial if you equate parking cash in bank accounts with investing that cash in expanding the business, and hiring new people.

          • Bob

            Didn’t say it was equal to expanding and hiring. Would be better if I bought a company’s stock or bond issue. But it does help banks lend.

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