The Republicans are trying to explain that they are allowing the America to default on debts because the party is concerned about generation of jobs for the ordinary citizens. But even a casual glance at the yawning tax lapses and loopholes that the Republicans in the Congress are not willing to close will expose the hollowness of their concerns. The corporate moguls think the public are fools and do not realize that they pay taxes at the rate of 15% while their chauffeurs and handymen pay their tax dues at a higher rate.
President Obama is trying to plug this “carried interest” loophole. According to White House calculations it will lead to raising of $20 billion during the next ten years. The real threat to the nation is not from distant Iran or Libya but from internal viruses that have been mushrooming. For instance the tax break has given John Paulson the manager of a hedge fund $4.9 billion in 2010 – a record breaking amount. Paulson has refused to comment.
Managers of hedge funds pay tax rate of 15% while ordinary mortals pay 35%. The compensation to the fund managers is based largely on their performance calculating to 20% or above on the profits they make for the firm. Thanks to the loophole this 20% is taxed at the rate of long term capital gains (if the underlying assets of the firm are held for a sufficiently long time) of only 15% instead of the regular income tax rate of 35%.
The reasoning behind this tax loophole is also brainless. The fee for performance is in return for the labour the manager has put in and definitely not the capital of the person and thus there is no logic in granting it the preference treatment given to capital gains.
Professor Victor Fleischer of University of Colorado at Boulder said, “The carried interest loophole represents everyone’s worst fear about the tax system – that the rich and powerful get away with murder. Closing the loophole won’t fix the budget by itself, but it gets us one step closer to justice”.
Currently the wealthiest 1% of the Americans has a bigger collective worth than the entire lot of 90% at the bottom. There are many other ways of raising funds while also seeing to it that the tax structure is more equitable. White House is trying to negotiate with White House on some of these but others have not even entered the stage.
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