Our current tax law is unfair in many ways, filled with loopholes that benefit a select few — mostly those who can afford highly paid lobbyists who have the ear of Congress. A glaring example is the “carried interest loophole.” Architects, construction workers, doctors, engineers, lawyers, nurses, small business owners, teachers and everyone else who works for a living pays taxes on their services income at the ordinary income tax rate. The “carried interest loophole,” however, permits private equity fund managers and others (typically Wall Street types) to earn billions of dollars of services income that is taxed at the preferential capital gains tax rate rather than at the regular ordinary income tax rate — the capital gains rate is about half the ordinary tax rate.
For many years, our tax code has allowed certain types of investment income (as distinguished from income earned from the providing of personal services) to be taxed at a much lower rate, i.e., the capital gains rate. For now, we are not debating the fairness of applying the capital gains rate (instead of the ordinary income rate) to investment income. But there is no substantive justification for Wall Street fund managers and others to be entitled to a special tax law that permits them to pay taxes at a much lower rate than the rate imposed on ordinary Americans. Such special treatment is patently unfair, reflects what is wrong with our political system (follow the money), and should be rectified immediately. The rich and powerful must not be allowed to enact laws that benefit themselves at our expense.
Tax zealots like Grover Norquist (Americans for Tax Reform) and Derek Monson (Sutherland Institute) distract us by asking how can we “best achieve fairness and prosperity through taxes on investment,” or whether the aim of tax and spending policy should be “to permit Utahns and Americans to keep as much of their money as practically possible,” or whether progressives believe that “the answer is to take as much money from Utahns and Americans as they can politically justify.” Those questions are reflective of their dogmatic views and can be addressed in a different context, but they are not germane to the carried interest discussion. The issue is — plain and simple — whether it is fair to tax a small, privileged group at one rate and the rest of American taxpayers at a much higher rate.
Ideologues have also asserted that removing the carried interest loophole would inhibit investments by private equity funds and thereby adversely affect the economic prosperity of many middle-class Utahns and Americans. Private equity funds are in the business of investing in companies that have a reasonable prospect of generating favorable investment returns. Like other locales, Utah is an environment that generally supports the entrepreneurial community, including a robust software industry, among others. Private equity funds will continue to invest in Utah companies — and companies across the country — even without the carried interest loophole.
Critics also contend that repealing the carried interest loophole would be harmful to retirees and would destroy good jobs. These are standard catch-phrases commonly used by ideologues to instill fear and confusion and distract people from the real issues. These assertions are simply untrue.
The Patriotic Millionaires believe we need a fairer tax system where those in positions of power cannot dictate policies for their benefit at the expense of most Americans. Repealing the carried interest loophole is a major step in that direction.
Senator Hatch should support the Carried Interest Fairness Act, which would repeal this preferential and unfair tax treatment.
Jonathan Ruga and Scott Young are the CEO and COO, respectively, of Sentry Financial Corporation, and are social issue activists. Joshua S. Kanter is a venture capitalist and the founder of Alliance for a Better Utah. They are all members of the Patriotic Millionaires.
See the OpEd in the Deseret News here.