A prominent conservative in Congress has released a tax reform package that actually will not leave the rich significantly richer. Should we be grateful for small blessings — or suspicious? Or both?
By Sam Pizzigati
The two cousins who run the private equity giant KKR, required disclosures revealed last week, together took home an astounding $327 million in 2013.
Even more astounding: Analysts expect that the top execs at two of KKR’s biggest private equity rivals, Leon Black of Apollo Global and Stephen Schwarzman of the Blackstone Group, will end up with considerably bigger 2013 windfalls than KKR cousins Henry Kravis and George Roberts.
The three biggest players at the Carlyle Group already have. William Conway Jr., David Rubenstein, and Daniel D’Aniello, news reports indicated last Thursday, will split $750 million for their 2013 private equity “labors.”
A hefty chunk of all these outrageously lush private equity windfalls comes via “carried interest,” Wall Street-speak for the cut that financial fund kingpins take on the profits they make on the money they invest for their investors.
Kravis and Roberts each pulled in $43.3 million in carried interest last year. Uncle Sam won’t get much of that. Taxpayers with carried interest income enjoy one of the most generous loopholes in the entire federal tax code.
Thanks to this convenient loophole, private equity wheelers and dealers face just a 23.38 percent federal tax on their tens of millions in carried interest, a rate well off the 39.6 percent rate on ordinary income over $450,000.
In other words, on every $10 million in carried interest that private equity and hedge fund masters of the universe collect, the carried interest loophole saves them over $1.6 million in taxes.[pullquote]Carried interest enjoys one of the most generous loopholes in the entire federal tax code.[/pullquote]
Will this situation ever change? Maybe. A surprising new “change agent” has just emerged. Representative Dave Camp, the Republican chair of the powerful House Ways and Means Committee, last week proposed a tax reform package that would repeal the carried interest loophole.
This same package includes a variety of other moves that progressive tax justice activists have been demanding for years.
Camp’s tax plan, for instance, denies corporations tax deductions on any annual corporate executive compensation that runs over $1 million — and also calls for a special tax on the assets of too-big-to-fail banks.
All these proposals represent an abrupt and rather amazing about-face from the “no-new-taxes” orthodoxy that congressional GOP leaders have robotically mouthed over recent years. Camp even describes his proposals with phrasing that Republican lawmakers typically dismiss as pure “rich-people bashing.”
“Stop Subsidies for Excessive Compensation,” reads the title that Camp’s official summary places over his proposal to limit how much corporations get to deduct off their taxes for executive pay.
“Today,” Camp’s description for this proposal continues, “Wall Street tycoons” are receiving “compensation packages riddled with special tax-exempt treatment — courtesy of hardworking taxpayers.”[pullquote]Camp’s tax plan lowers the top tax rate on both individual and corporate income.[/pullquote]
A powerful Republican going after tax loopholes near and dear to “Wall Street tycoons”? This turn of events last week had veteran Capitol Hill observers scratching their heads — and searching for the catch. They found a bunch.
Yes, the Camp proposal does go after some longstanding loopholes that have funneled huge tax savings to America’s rich. But Camp’s tax plan also lowers the top tax rate on both individual and corporate income.
The Camp tax reform package drops the top personal federal income tax rate down to 25 percent from the current 39.6 percent. A surtax he proposes does bring that top rate up to 35 percent on “certain types” of family income over $464,000. But those certain types don’t include all capital gains and dividend income, the prime source of wealth for America’s super rich.
The loophole-plugging proposals in the Camp plan, for their part, turn out to have some leaks. Camp’s limit on how much corporations can deduct for executive pay only applies to a few top executives at each corporation.
Reform legislation introduced last year by Senators Jack Reed and Richard Blumenthal, by contrast, would apply a $1 million deductibility limit to all corporate power suits.
Camp’s tax reform package, economist Dean Baker points out, also leaves untouched the tax code provision that lets corporations deduct off their taxes the interest they pay on loans, the loophole that makes private equity wheeling and dealing so fabulously lucrative in the first place.[pullquote]The Camp tax plan gives America’s top income-takers a free pass from higher taxes.[/pullquote]
The Camp tax plan essentially gives America’s top income-takers a free pass from higher taxes — and, as a result, will make no dent whatsoever on America’s staggering levels of income inequality.
If the Camp tax plan becomes law, the congressional Joint Committee on Taxation estimates, tax bills for taxpayers reporting over $1 million in income will actually fall slightly in 2015.
Affluents in the $200,000-to-$1 million per year income range, interestingly, figure to see a slight increase in their tax burden.
Should these affluents on the outside of the top 0.1 percent looking in be worrying about the Camp plan actually becoming law? Probably not. Both Republican and Democratic congressional leaders are declaring that Camp’s tax package has zilch chance of passage any time soon.
So why pay the Camp plan any attention at all?
One reason: The bill reflects the first crack in the GOP’s stonewall against undoing tax code provisions that tilt the wealthy’s way. Senior GOP legislative heavyweight like David Camp are clearly sensing deep public anger over an economic system that privileges the rich. Astute conservatives are realizing they can’t afford politically to keep handing Wall Street blank checks. Something, they understand, has to change — if only for show.
But show can have consequences. Conservatives can’t call for ending subsidies for carried interest and executive pay and then holler when progressives push legislation that actually sets out to accomplish these same goals.
Representative Camp has pushed open a door. Advocates for greater equality in America now need to rush in.
Labor journalist Sam Pizzigati, an Institute for Policy Studies associate fellow, writes widely about inequality. His latest book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.