CRF Blog

Filling Loopholes

by Bill Hayes

In The MBA Candidate Meets the Mad-as-Hell Electorate, Bloomberg Businessweek looks into the low rate that Mitt Romney pays on his taxes.

At the heart of the debate lies a loophole — the carried-interest provision — that allows private equity executives like Romney to treat their income as capital gains taxed at a rate of 15 percent, rather than the 35 percent top rate that applies to ordinary income. Many Democrats and a few Republicans regard this as an unconscionable sop to the rich. When they controlled the House from 2007-2010, Democrats passed legislation four times to end it. But reform has never advanced, partly because senators—including some Democrats — have interfered. (Wall Street is a major source of Democratic campaign contributions.) When carried interest first came up as a political issue five years ago, Senator Charles E. Schumer (D-N.Y.) killed any chance of reform by insisting that any law threatening the loophole also apply to investment partnerships in other industries, such as oil and mineral exploration. That caused a broad enough outcry from financiers to stop the bill, and the issue fell into limbo. [more]