August 6, 2013

Tuesday Tax Tradeoff: Better Education for Our Kids OR Tax Breaks for Wall Street Fund Managers

By William Rice, Policy Consultant, Americans for Tax Fairness

Trade off 8_6_13

The best investment is a good education. But the across-the-board federal budget cut, known as the “sequester,” is shrinking that investment in our children’s and our nation’s future. Meanwhile, the managers of big Wall Street investment funds have learned a valuable accounting trick to cut the taxes they pay on their multimillion dollar earnings in half.

Cuts in funding for elementary and secondary education and for special education have hit school districts hard across the country. They have taken away extra help for kids who come from low-income households or have learning challenges. From lost classroom aides and specialized instructors to reduced transportation, the most vulnerable kids are suffering most. 2013 Budget Cut: $1.7 billion (p. 20)

The huge earnings of Wall Street private equity and hedge fund managers should be taxed the same way as earnings from all other jobs—at the maximum federal rate of 39.6 percent for the highest earners. But they have figured out how to cap their tax rates at 20 percent – half of what it should be – by mischaracterizing part of the money they make as investment income called “carried interest.” Annual Tax Break: $1.7 billion (p. 7, Section XV.I)

The lesson for us all: Making investment fund managers play by the rules can support smart investments for America.