Close the Hedge Fund Tax Loophole

Politicians currently negotiating to reduce the national debt and not wreck havoc with the US's credit rating are looking at several solutions to help bring the budget under control. President Obama and the Democrats are looking at closing some "tax loopholes" that add up to serious tax giveaways to the wealthy.

One of the tax breaks upon which President Obama has focused is a provision that allows hedge fund managers — who make billions annually — to receive a substantial tax break. This particular tax break, known as the carried-interest loophole, allows hedge fund managers to treat the money they receive from investors as capital gains, subject to a 15 percent tax rate, instead of their actual income tax bracket rate.

Though this money is a paycheck received for services, it’s treated as "return on investment" income, which is taxed at a much lower rate.

Since hedge fund managers are some of the richest people in the country, this tax break actually causes a significant loss of revenue. According to calculations by RJ Eskow, closing this loophole would raise more than $4 billion per year just from the 25 richest hedge fund managers:

The top 25 hedge fund managers in the United States collectively earned $22 billion last year, and yet they have their own cushy set of tax rules. If they operated under the same rules that apply to other people — police officers, for example, or teachers — the country could cut its national deficit by as much as $44 billion in the next ten years.

Economist Robert Reich estimates that closing the hedge fund loophole could raise as much as $20 billion a year in revenue, overall.