Sunday, May 23, 2010

Welfare for the Rich

Those who lived through the Reagan years remember how he played the race card with his "welfare queen" complaint. How dare these people live off the taxpayer. They should get a job.

But those same people have no problem with "hedge fund kings", guys who get to pretend that their income isn't income and instead is "capital gains" so they can be taxed at a much lower rate: 15% instead of 35%.

And this isn't peanuts. The very largest incomes in 2009 were for hedge fund managers. The top few make well over $1 billion. So these "hedge fund kings" each got to pocket at least $200,000 as a gift from the taxpayers.

That sure makes "welfare queens" look like pikers.

Here's a bit from an article by Robert Reich on this loophole, this welfare for the rich:
Who could be opposed to closing a tax loophole that allows hedge-fund and private equity managers to treat their earnings as capital gains – and pay a rate of only 15 percent rather than the 35 percent applied to ordinary income?

Answer: Some of the nation’s most prominent and wealthiest private asset managers, such as Paul Allen and Henry Kravis, who, along with hordes of lobbyists, are determined to keep the loophole wide open.

The House has already tried three times to close it only to have the Senate cave in because of campaign donations from these and other financiers who benefit from it.


It’s not as if these investment fund managers are worth a $20 billion subsidy. Nonetheless they argue that if they have to pay at the normal rate they’ll be discouraged from investing in innovative companies and startups. But if such investments are worthwhile they shouldn’t need to be subsidized. Besides, in the years leading up to the crash of 2008, hedge-fund and private equity fund managers weren’t exactly models of public service. Many speculated in ways that destabilized the whole financial system.


There is also a moral issue here. Call me old fashioned but I just think it’s wrong that a single hedge fund manager earns a billion dollars, when a billion dollars would pay the salaries of about 20,000 teachers.
Reich is optimistic that maybe something will be done to fix this. Go read the rest of the article for that glimmer of hope.

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