More on Capital Gains vs Ordinary Income

There have been some excellent recent diaries about the issue of income being taxed at 15% (capital gains) vs. as ordinary income.  With everything going on this week regarding the Meirs and Taylor hearings, the Moyers broadcast, vote in the House to bring our troops home, and the Home Run Derby, this shouldn't get lost...

bonddad1

FoundingFatherDAR1

FoundingFatherDAR2

In Friday's NYT there were two items that caught my eye, a front page story about tax loopholes and Paul Krugman's editorial in which he states:

"A couple of weeks ago, Warren Buffett pointed out that he pays on average federal income tax of 17.7 percent while his receptionist pays about 30 percent"

More below....

Yes, there are only 2 things that are certain, death and taxes.  And the govt needs tax income to help pay for all those things we like such as defending our country, National Parks, the CDC, the FDA, the USDA, the CPB, Social Security, Medicare, Head Start, etc........as well as those things we don't like such as spending $10B a month in Iraq.  We may not like paying taxes, but we have to.  With that being said we would like the tax system to be fair.  In the early 1900s the tax system wasn't so fair.  I'm no tax expert, but I have to believe that the excesses of the Guilded Age where part of the reason that the Federal Income Tax system was implemented.

We have now reached a point in our history where the tax code seems to be skewing again.  There is the influence of the Alternative Minimum Tax, which now hits more and more Americans, Bush's tax cuts for the wealthy and a new one for me, the loophole that allows certain income to be charged at the rate for Capital Gains, 15%, rather than the higher rates for ordinary income.

In Friday's NYT one of the front page articles was "Tax Loopholes Sweeten a Deal for Blackstone"

NYT Blackstone

The article states:

"The Blackstone Group, the big buyout firm, has devised a way for its partners to effectively avoid paying taxes on $3.7 billion, the bulk of what it raised last month from selling shares to the public"

Further:

"Lee Sheppard, a tax lawyer who critiques deals for Tax Notes magazine and has studied the Blackstone arrrangment, said it was a reminder of the disconnect between the tax debate in Congress and how the tax system actually operates at the highest levels of the economy"

'These guys have figured out how to turn paying taxes into an innuity' Ms Sheppard said.'

Inside the paper there is a good visual showing how it all works.

Paul Krugman's excellent editorial is "An Unjustified Privilege"  Paul states:

"So fund managers get to pay a low tax rate that is supposed to provide incentives to risk-taking investors, even though they aren't investors and they aren't taking risks"

and

"The immediate response should be, what risk-taking? To repeat: the fund managers aren't entrepreneurs; they aren't putting their own assets on the line"......other Americans also earn their pay, but they don't get special tax breaks.  Plus we are talking about a lot of lost revenue due to the loophole - revenue that could for example, be paying for the health care of tens if not hundreds of thousands of children"

He closes with a plea to those Senators on the fence to do the right thing and close this loophole.

Thanks bonddad and FoundingFatherDAR for your leads on this story.  Please continue the good work!