When it comes to our progressive income tax structure and taxation, it must be said that our tax system is fundamentally failing the American public, for the very wealthy entities that should be paying a much higher percentage of their monies into our tax system, are the very same, that are quite gifted at avoiding paying their full freight. What is especially annoying and very telling, is that a tiny portion of Americans are able to take advantage of the carried interest loophole to pay thereby not even close to what they should be paying in regards to a fair and appropriate tax. The entities taking advantage of this carried interest, are private equity associations, venture capital groups, and hedge funds – which represent not only people and entities that the vast majority of Americans are not intimately familiar with but also represent the very institutions that could readily pay their fair share in taxes but do not, because of this carried interest exception.
The long and short of carried interest is that the compensation that these hedge fund members get, is somehow re-categorized into representing long-term capital gains as compared to ordinary income, of which, ordinary income for hi-income people is at a substantially higher tax rate than capital gains. So, because the maximum long-term capital gain is a mere 20%, whereas ordinary income is taxed as high as 37%, those that are in the hedge fund business are somehow permitted to have their income categorized as a capital gain, which thereupon provides them with the savings in aggregate, of billions of tax dollars.
The crux of the problem with carried interest and why it needs to be eliminated posthaste is that the percentage of Americans that are able to take advantage of carried interest is minuscule, but the fact that these institutions are able to utilize carried interest to substantially reduce their taxes, represents as reported by ourfinancialsecurity.org, “between $1.4 billion and $18 billion annually,” of savings in taxes -- that private equity companies, venture capitalists, and hedge funds are able to circumvent, to the ultimate unfairness of ordinary Americans.
Indeed, for all those who want to know as to whether or not our tax system is fair, look no further than to the carried interest loophole, in which the very few are the beneficiaries at the expense of the people and this government of, for, and by the people. The fact that this is so, clearly represents that those who have lots of money and influence are able to get their way, again and again; whereas, those who play by the rules are burdened ever more with taxes, and the deficits that this government consistently runs, are placed upon the shoulders of the current generation, as well as generations, yet unborn. In truth, when it comes to tax reform, it is an absolute certainty, that if the carried interest exception cannot be eliminated from our tax code, then a tax code that is fair and progressive does not truly exist, for in this nation, because of all the tax exceptions so made on behalf of the biggest and most powerful corporations, as well as to individuals of massive wealth, these privileged entities do not pay their fair taxation share.