The Hedge Fund Handout

GOP Tax Giveaway of the Day: The Hedge Fund Loophole

The default crisis talks seem to have accelerated today, after what President Obama described as a “constructive” lunchtime meeting with congressional leaders from both parties. The two sides are scheduled to reconvene at the White House again on Sunday.

Here’s the lowdown one of the most costly and pernicious giveaways in the tax code.  Eliminating this giveaway to billionaires should be at the top of anyone who is serious about deficit reduction’s list.

WHAT: The “carried interest” or hedge fund loophole

WHO BENEFITS: The managers of financial partnerships, such as hedge funds, private equity funds, venture capital funds, and real estate funds

HOW IT WORKS: Nicholas Kristof of the New York Times, in a must-read column, explains:

These fund managers are compensated mostly with a performance bonus of 20 percent or more of the profits they make. Under this carried interest loophole, that 20 percent is eligible to be taxed at the long-term capital gains rate (if the fund’s underlying assets are held long enough) of just 15 percent rather than the regular personal income rate of 35 percent.

This tax loophole is also intellectually vacuous. The performance fee is a return on the manager’s labor, not his or her capital, so there’s no reason to give it preferential capital gains treatment.

HOW MUCH IT WASTES: More than $20 BILLION over 10 years

WHY IT’S OUTRAGEOUS: A hedge fund manager’s secretary is likely to be paying a higher tax rate than his or her billionaire boss


IN ONE SENTENCE: Instead of slashing Social Security and ending Medicare, it’s time for billionaires to start paying their fair share.

Evening Brief: Important Stories That You May Have Missed

Republican political operative Dick Morris has been promoting a recent poll showing that Obama would get only 56 percent of the Jewish vote, but Washington Jewish Week’s Adam Kredo is questioning the credibility of Morris’s poll, observing, “the poll is a completely partisan exercise devoid of scientific objectivity.”

Sen. Lindsey Graham (R-SC) claims the Obama administration’s decision to transfer a Somali terrorism suspect to New York is not “what’s best for the country” and says the detainee should have been transferred to Guantanamo Bay and interrogated.

Daniel R. DePetris writes on the Washington Note that while Libyan leader Muammar Qaddafi is under pressure from NATO airstrikes, he may yet have the upper-hand if he can maintain a stalemate as NATO countries face backlash in the form of domestic public opinion souring on the NATO military mission.

While Washington toys with draconian budget cuts, the majority of Americans — including 50 percent of Republicans — say it is more important to keep Social Security and Medicare benefits rather than cut them to reduce the deficit.

A new bipartisan study highlights the overwhelming health and financial benefits of Medicaid, which undermines the GOP’s claim that people would be better off uninsured than on Medicaid.

House Republicans launch an anti-Kagan witchhunt to throw up a smokescreen around Justice Thomas’ many, many ethics scandals.

Bobby Jindal likens women who receive abortions to criminals.

No one has any idea what’s going on with the debt ceiling negotiations.

And finally, Republican presidential hopeful Tim Pawlenty gushed that he, too, is one of Lady Gaga’s “little monsters.”

Notable Quotable: Senator DeMint (R-SC) Says He’s Willing To Risk ‘Serious Disruptions’ To The Economy

Notable Quotable: GOP Rep. Says House Republicans Have Privately Discussed Impeaching Obama Over Debt Ceiling

Notable Quotable: House Democratic Leader Nancy Pelosi

“I also want to have full clarity about where House Democrats stand.  We do not support cuts in benefits for Social Security and Medicare. Any discussion of Medicare or Social Security should be on its own table.  I have said that before.  When we take a look at Social Security, then look at it on its own table, but do not consider Social Security a piggy bank for giving tax cuts to the wealthiest people in our country.  We are not going to balance the budget on the backs of America’s seniors, women and people with disabilities.


The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.


Advocacy Team