Ending Tax Break for Ultrawealthy May Not Take Act of Congress
It’s only natural that Barack Obama, entering the homestretch of his presidency, would be concerned about his legacy. Judging from a recent interview in The New York Times Magazine, getting credit for the actions he has taken on economic issues seems to be of special interest to him.Mr. Obama expressed frustration that many middle-class Americans feel they’ve been left behind during his time in office. The wealthiest Americans, meanwhile, have become richer during the Obama years.There is a lot about this problem of income inequality — and about the economy over all — that Mr. Obama cannot control. Still, there is something he could do right now to help narrow the widening gulf between rich and poor.In one deft move, Mr. Obama could instruct officials at his Treasury Department to close the so-called carried interest tax loophole that allows managers of private equity and hedge funds to pay a substantially lower federal tax rate on much of their income.Forcing these managers to pay ordinary income taxes on the gains they reap in their funds would accomplish two things. It would take away an enormous benefit enjoyed almost exclusively by some of the country’s wealthiest people. And, tax experts say, it would generate billions in revenue to the government each year, though there are wide differences over exactly how much.But doesn’t changing the carried interest loophole require an act of Congress? Not according to an array of tax experts. Just as Mr. Obama’s Treasury Department recently changed the rules to curb corporate inversions, in which companies shift their official headquarters to another country to lower their tax bills, the Treasury secretary, Jacob J. Lew, and his colleagues could jettison the carried interest loophole.Alan J. Wilensky is among those urging such a change. He was a deputy assistant Treasury secretary in charge of tax policy in the early 1990s when the carried interest loophole came about.“This is something President Obama can do and should do,” Mr. Wilensky said in an interview. “This is not an impossible thing to get done.”Now a lawyer in Minneapolis, Mr. Wilensky recently wrote an article on this topic for Tax Notes, the definitive publication on national and global tax issues.Victor Fleischer, a law professor at the University of San Diego, is another who has recommended that the Treasury get rid of the unjust tax treatment on carried interest. Mr. Fleischer, a contributor to The New York Times, has also estimated how much money such a change would bring to the Treasury....MORE
