That should have been the headline of a Wall Street Journal article on a new group sponsored in part by the Private Equity Council (an industry trade group for private equity funds), rather than “Minority Group Fights Carry Tax Increase.” Just to reorient folks after their summer vacations, the basic story here is that the equity and hedge fund managers are very upset about the prospect that they will face the same tax schedule as school teachers and firefighters. They argue that they should only pay the 15 percent capital gains tax rate on their compensation because -- well, they are rich and it costs a lot of money to be rich. (Actually, they claim that their compensation is a return on investment income because it takes the form of a contingent fee, but this doesn’t make any difference in the tax rates paid by realtors, shoe salespeople, or cab drivers who get tips.) Since the public apparently has limited sympathy for fund managers, they have now assembled a group of prominent African Americans and Hispanics who are claiming that ending the tax subsidy for equity and hedge funds will hurt investment in minority communities. This is true in the sense that some non-zero portion of the money under these funds’ control gets invested in minority communities. So anything that reduces the money under their control will presumably have a negative impact on the amount of money they invest in minority communities. In this way, requiring that the fund managers pay their taxes is just like requiring that they pay their electricity bill or their rent. If they didn’t have to pay their electricity bill or rent, they would have more money to invest in minority communities. Of course it would be ridiculous to suggest that granting the fund managers an amnesty on their electricity bills or rent is an effective way to benefit minority communities. Similarly, it is absurd to argue that granting a special tax break to these managers, the vast majority of whom are white, is a reasonable public policy for helping minorities. The only news in this story is that some of the richest people in the country have hired some prominent minority figures to protect their tax break. That should have been the focus of the article.
--Dean Baker
