The Democrats’ Inflation Reduction Act tightens a notorious tax loophole benefiting hedge fund managers and other wealthy investors. The nefarious tax loophole “Carried Interest” is one of the most infamous in American politics.
Will Sen. Kyrsten Sinema vote for it or against it when it comes up for a vote this week in the US Senate? Nobody knows what the Diva will do. She has supported a minimum tax on large corporations (which is part of the Inflation Reduction Act), but she has also objected to increasing corporate taxes.
The picture becomes clearer when you see that the right-wing Koch organization just heaped praise on her. It becomes even clearer when you see that Big Pharma and investment banks have made hefty donations to her.
Paid less in taxes than a secretary
The “Carried Interest” loophole is what billionaire investor Warren Buffett refers to when he says how he pays a lower tax rate than his secretary. Simply, Carried Interest is a share of the profits of a private equity or hedge fund that is paid to fund managers. Traditionally, Carried Interest totals 20% to 25% of profits. This percentage is huge compared to management fees.
But under the loophole, Carried Interest in private equity is classified as capital gains and is taxed at the capital gain tax rate. It is a favorable rate compared to the ordinary tax rate. The management fees are taxed up to 37% because they are viewed as ordinary income in the eyes of the Internal Revenue Service.
Carried Interest, however, can be taxed at capital gains rates of much less – from 15% or 20%. However, Carried Interests are not capital gains but are actually income from labor and, therefore, should be taxed at the higher ordinary rates on income.
To sum up:
- Carried Interest is a share of private equity or fund profits that serve as fund managers’ compensation.
- Because the loophole considers Carried Interest to be a return on investment, it is taxed at the lower capital gains rate and not higher income rates.
- Advocates of Carried Interest argue that it supercharges fund managers to make titanic profits.
Both President Obama and Trump spoke about getting rid of the Carried Interest loophole. Trump even made an issue of this special tax benefit during his presidential campaign. He labeled some hedge fund managers as “paper pushers” who are “getting away with murder.” President Obama said, “I will tell you that keeping this tax loophole, which leads to folks paying lower rates than their secretaries, is not helping the American economy.”
What is on the Diva’s mind?
As for the Diva herself, her campaign cash on hand stands at $7.4 million. And at least $923,065 from the investment industry which is leading the charge against Biden’s economic plan.
The “Taxpayers Protection Alliance” ran a full-page ad in the July 30 Arizona Daily Star, thanking Sinema for rejecting “President Bidens’ tax on small businesses” and “saying Arizona taxpayers and consumers appreciate your commitment to a strong economy. It turns out the Taxpayers Protective Alliance is an advocacy front group for the Koch political network.
A 300-page report on the 2007-08 housing bubble collapse makes clear that Carried Interest and sub-prime mortgages go hand in hand. For example, John Paulson, a hedge fund manager, managed to make more than $3.7 billion in 2007 and $5 billion in 2010 — all from shorting the sub-prime mortgage market during the housing price bubble.
But it turned out he wasn’t the financial genius that people thought. Two brokerage firms, Bear Stearns and Goldman Sachs, were feeding him information on which mortgage-backed securities were rated junk. Thus, it was easy for Paulson to short sell these securities, knowing that when the time came to pay up, the stocks would be almost worthless. Paulson ended up paying only 30% in taxes on the first billion and only 15% on the rest.
Fully 99.999% of American taxpayers are not eligible to take advantage of the Carried Interest loophole because they are not hedge fund managers or sitting US senators like Sinema. So, what could be gained by having millionaires and billionaires paying less in taxes?
But again, when it comes to the Diva, nothing is normal.
Too Big to Fail: Having read 35 plus books on the meltdown and one of them was the book “Too Big to Fail” I know this story of the meltdown and even the carried interest part and it’s much too big even now to try to wrap your head around. But anyone willing to try to understand what went on and who was responsible should download from the gov.site https://www.govinfo.gov/content/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf
it is still available.
I worked at one of the Too Big to Fail banks, starting in 2008 until 2021.
A couple of years after the meltdown, they were still bundling. They were bragging about it on company calls.
But they had expanded it to include anything with an interest rate.
So they were bundling used car loans, which seems insane, along with rail cars, the containers on container ships and the ships themselves, heavy machinery and equipment, apartment rentals, office space, your local auto mechanic may well have a loan out for all his tools…
You’d be surprised how much of American business is financed or leased.
That bank also created half a million unwanted accounts for customers, some of whom lost jobs and homes because of overdraft fees on accounts they didn’t know they had, and they were hiring anyone who could hold a pen, gave them the title of Vice President, and had them “robo-signing” docs.
Somehow the CEO and the rest not only walked away without a prison sentence, they walked away with tens of millions in gold parachute money, the CEO with over 100 million alone.
Those are the people Sinema is protecting. Pure scum.
They destroy lives and then hit the country club for G&Ts and finger sandwiches.
Well, we knew that even this emaciated derivative of Build Back Better, now known as the Inflation Reduction Act, would not reach the floor without the assprint of Kyrsten Sinema.
And we know her recurring issues. She is the protectress of the wealth of the wealthiest, that’s the deal she has cut and she’s sticking to it.
What a wretched, horrible person she is.
My article about Sinema carried interest and was just the tip of the iceberg in the sub-prime meltdown. The carried interest loophole didn’t hurt any individuals with the expect of the U.S. Treasury and they are not an individual. But what did hurt thousands of Americans was the mortgage foreclosure scam. These sub-prime loans or Alt loans or No Doc. Loans (no documentation required or as they were required) or in the words of the originator’s Liars Loans. Thousands of these loans were bundled together and bought by brokerage houses. When the 2007–2008 Financial
Crisis hit a lot of these no-doc loans came into default. (lack of mortgage payments) This is when the U.S. court system broke down. The promissory note (simply the IOU and mortgage) which creates the lien on the home in case of default must be shown to the courts. Unfortunately, because thousands of individual mortgages were bundled into one there was no way brokerage companies could ever prove to the courts that they indeed owned the mortgage. U.S. law is very clear on this point that two documents must be shown to the court the mortgage itself and the note. The court cannot accept any copies or electronic copies. They must show the originals. That was impossible but lawyers for the brokerage companies discovered that after losing case after case because private U.S. citizens got involved and this was without hiring attorneys. But that didn’t stop lawyers and big brokerage companies from trying Congress. Where they succeeded in having Congress pass H.B. 3808 the Interstate Recognition of Notarization Act. President Obama was of two minds about the bill. Where economic advisers Larry Summers and Elizabeth Warren (consumer protection Bureau) went head-to-head on this and Elizabeth won. President Obama to his credit vetoes the bill. What this reality shows is that neither the U.S. court system nor the U.S. Congress will protect its citizens when big money boys are involved.
HuffPost reports, “Kyrsten Sinema Is Demanding Democrats Keep A Tax Break For The Super-Wealthy”, https://www.huffpost.com/entry/kyrsten-sinema-tax-break-loophole_n_62eae726e4b0ecfe3f6d4490
[On] Tuesday, Sinema discussed the legislation with the Arizona Chamber of Commerce and the National Association of Manufacturers, two groups who oppose all of the tax hikes in the legislation.
Her business-friendly positioning has paid dividends for her campaign account: In 2021 alone, she received more than $144,000 in donations from industry groups that lobbied against closing the carried interest loophole. More recently, she took in $100,000 from Wall Street and $50,000 from pharmaceutical companies in the second quarter of 2022 alone.
“We can only assume that she’s been motivated by the money they’re donating to her campaigns,” one former Sinema staffer, speaking on condition of anonymity because they still work in Democratic politics, told HuffPost. “I knew she was always trying to be an atypical Democrat. She wants to be Arizona’s new maverick. I never thought she would just toe the party line. But throwing away campaign promises you made and snubbing your nose at the people who got you elected, that makes you the opposite of a maverick. It makes you a corporate shill.”
Find someone who loves you like Senator Sinema loves the carried-interest loophole.
1:09 PM · Aug 3, 2022·Twitter for Android
“As for the Diva herself, her campaign cash on hand stands at $7.4 million. And at least $923,065 from the investment industry which is leading the charge against Biden’s economic plan.”
Hmmm. Well, no matter how you look at it, selling her vote for a mere 923K from the investment industry is pretty cheap. In fact it’s a giveaway. The Democrats could have raised more than that to buy her vote with a GoFundMe account. But I guess the “Thank you, Sinema” ads are part of the deal she gets when she sells out. Still cheap though.
It still find it astonishing that the poor little girl who grew up in an abandoned gas station has become the defender of hedge fund managers wealth.
Great post, Mr, Steele.
She’s always taken money from banks, that’s the old reason for my dislike of her.
Her support for the filibuster has leapfrogged to the lead on reasons why I actually hate her.
Sinema will be leaving the Senate a very wealthy woman, she’s not going to vote to tax her future self.
Yeah, she could easily have 25 million or thereabouts in cash by 2024. If she chooses not to run, which would be the smart choice, she walks away with it. And no criminal record, just a morally reprehensible record.
But I’m not convinced she’s going to do that. All of that “Thank you Sinema” nonsense seems to indicate that she trying to manage the perceptions of voters. In the bubble she now occupies, she thinks there are enough low information voters who believe ads and will re-elect her if she chooses to run.