And here's the rub. Because the U.S. lacks sensible regulation, hedge fund managers are typically compensated under a standard pay formula called "2 and 20." They receive a management fee of 2% based on assets under management and 20% of the profits of the fund as a performance bonus. Only the 2% management fee is taxed as ordinary income which means that 98% of their income is taxed at the much lower capital gains rate because of the "carried interest" tax loophole!
Why should our society make it possible for an individual to earn in one year twice the projected cost of rebuilding the entire city of Detroit? Will the compensation levels of hedge fund managers be used by corporate CEO's to argue for even higher levels of compensation for themselves and, as a result, an even wider gap between their compensation and that of their employees? What message does such inequity send to young Americans contemplating a career path? What does it say to the millions upon millions of hard-working Americans struggling to provide for their families? Is this a measure of the kind of society we are asking our military personnel to protect?
I have asked literally hundreds of Americans to guess at the hourly or per minute wage of the top hedge fund manager in 2013. Only a few have come remotely close. When I tell them, they often laugh nervously, joke about how "great it would be to have that job" or imply that their career choice was somehow a mistake, and begin to look defeated. Sometimes, after a few seconds of reflection, they recognize just how wrong this is on every conceivable level. With the exception of a few "libertarians", Americans representing every political persuasion, liberals, Democrats, Republicans, conservatives, and yes, Tea Party members as well, express shock and dismay at this travesty. If my sampling is any indication, broad bi-partisan support is possible to end this abomination.
I have focused on the regulation and taxation of hedge funds because it is so clearly egregious. Obviously many other tax loopholes exacerbate our growing income and wealth inequality and require correction as well. Tax reform, however, seems to be continuously caught in an "all or nothing" black hole with lobbyists and the special interests they represent, the beneficiaries, and hard-working Americans, the victims. Congressman Sandy Levin introduced legislation (H.R.2834) as early as June, 2007 and every year thereafter through 2012, that would treat "carried interest" as ordinary income. It succumbed to the legislative "black hole."
There is now a new opportunity in the form of S. 268, "The Cut Loopholes Act", introduced by Sen. Carl Levin in February 2013. Inexplicably it has only one co-sponsor to date, Sen. Sheldon Whitehouse. It is languishing in the Finance Committee. I urge you to join Sen. Whitehouse and co-sponsor S.268. Furthermore, carving out Title VI of the Bill which deals specifically with the "carried interest" loophole would be a logical and strategic next step towards reform followed by legislation that would regulate the allowable compensation of hedge fund managers.
Given the political climate in Washington, there is no guarantee that the future will bring a better time to fight for tax and regulatory reform. Given the great challenges our country faces, time is of the essence. Given the fair-mindedness of the vast majority of Americans, your efforts to reform tax loopholes would be applauded.
Sincerely yours,
Frank Puig
Sent to: Senators Baldwin, Brown, Franken, Gillibrand, Harkin, Merkley, Mikulski, Murphy, Murray, Sanders, Schumer, Shaheen, Udall, Warren, Wyden
cc's Sen. Carl Levin, Sen. Sheldon Whitehouse, and attached list
Letter to Sen. Bernie Sanders et al: July 2, 2014 re: S.268 -- Hedge Fund Taxation & Regulation -- Copies of letter sent to the following (partial list):
Rep. Keith Ellison, Co-Chair, Congressional Progressive Caucus
Rep. Raul M. Grijalva, Co-Chair Congressional Progressive Caucus
Richard L. Trumka, President, AFL-CIO
James P. Hoffa, General President, Intl Brotherhood of Teamsters
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