Private equity tax

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Reuters has reported that:

U.S. House of Representatives Ways and Means Committee Chairman Charles Rangel's tax reform bill -- dubbed "the mother of all reforms" on Capitol Hill -- has proposed more than doubling the tax rate on the carried-interest profits of private equity firm managers and to prevent hedge fund managers from sheltering income in overseas tax havens.

The private equity and hedge fund industries, both flush with substantial investment profits in recent years, are lobbying against tax hikes. Besides Rangel, other lawmakers are proposing increasing carried interest taxation.

But as MSN reports:

The US lobbyists hired by the private equity and hedge fund industries to fend off threatened tax increases have chalked up some modest victories on Capitol Hill.

Key votes have been delayed and time bought after the investment industry hired some of Washington's most prominent lobbyists to influence lawmakers and spread largesse through campaign donations.

The issue at the end of the day is a stark one. It's simply stated. Do the wealthy pay, or do the less well off? Warren Buffet summarised it in a story reported here yesterday when he noted that he pays tax at a lower rate than does his cleaner.

The same Guardian article I referred to on Buffett had this to add:

A leading Democrat, the Harlem congressman Charlie Rangel, published alternative plans this week that would impose a 4% surcharge on people earning more than $200,000 a year, while delivering tax relief to 90 million working families.

But they noted that:

Republicans say the net effect would be a $2 trillion tax increase that would hurt small businesses and farmers.

Meanwhile, Mr Buffett's remarks drew a robust response from the US Chamber of Commerce, which said the top 1% of US earners accounted for 39% of tax revenue - and the highest earning 25% of the population delivered 86% of the tax-take.

The chamber's chief economist, Martin Regalia, said: "There's no question in my mind: if you were to impose [the Democrats'] tax increases, you would see the US go into a recession."

But the Republican's logic is just wrong, as is Martin Regalia's. The wealthy can afford to pay - and any small business person earning more than $200,000 (roughly £100,000) can do likewise. Remember, these figures are struck after all tax reliefs. Second, giving the less well off more to spend boosts the economy more than giving the best off more to save, which only inflates property prices whether real estate or the stock market. Third, tax spending is the best way to keep a country out of recession. Keynes was right on that.

So this is a simple debate: recession or not, the wealthy want to keep their cash from benefiting anyone but themselves. It's a battle the Democrats have to win. And win they will, I think.