Billionaire “greenie” Tom Steyer is demanding that candidates for president support the one tax increase Republicans like: namely, eliminating the limousine liberal’s “carried interest” loophole that allows uber-wealthy hedge fund moguls to pay a lower tax rate than Americans earning over $36,900. Calling income inequality an “urgent” issue, Steyer wants to dump the loophole that made him rich.
It is often problematic when retired billionaires call on government to raise taxes to cure income inequality, when it is often the case that job killing taxes and regulation is the culprit that promote the inequality. Warren Buffett in August 2011 wrote an opinion piece in the New York Times asserting his support for tax rates going up because his 2010 “federal tax rate” of 17.4 percent was 18.6 percentage points less than the 36.0 percent average rate paid by the twenty other workers in his office. But Buffett knew he would was barely be impacted when rates went up in 2013, because his combined use of insurance, trust and tax strategies continued to help him avoid “fully-taxable income.”
Fabulously rich and liberal hedge and private equity fund managers, like Steyer, can credit a major portion of their accumulated wealth to their ability to avoid paying statutory income tax rates through the tax loophole for elites called the “carried interest.”
The 50-year-old provision was originally passed as an incentive for risk-takers to make long-term capital investments, such as putting up a building, starting a small business or investing in company stock. But a hedge and private equity manager operating as a “general partner” can roll over his or her annual non-risk fee-as-a-percentage-of-profits income (usually 20 percent of profits) into a “carried interest” in their client’s risk-taking portfolio. The manager then compounds income tax free until cashing out after a year or more, paying about half the statutory income tax rate.
Steyer, as founder of San Francisco’s Farallon Capital Management– where he earned the title “California’s hedge fund king”–cashed out from a carried interest stake of over $1 billion in the fund at a 15 percent capital gains tax rate, just before the 2013 tax increase and Obamacare surcharges raised the capital gains tax rate to 23.8 percent.
Since that time, Steyer has dedicated his life to supporting an environmentalist agenda to eliminate the worldwide use of fossil fuels. In 2014, Steyer demonstrated his commitment to the cause by donating $73.725 million to Super PACs. That was about $10 million more than the other top 10 campaign Super PAC contributors combined.
Despite the Republican Party’s long-standing pledge to resist tax hikes–particularly after compromising on the 2012 “fiscal cliff” deal that allowed rates on higher earners to go up–the GOP leadership has supported eliminating carried interest deductions, partly because it would primarily affect wealthy Democratic campaign donors, according to Roll Call.
Speaker John A. Boehner “can probably offer a carried interest amendment as one tax increase that is warranted,” a Republican lobbyist told Roll Call in February 2013. He added, “Democrats can screw their big, rich donors.”
The biggest resistance to eliminating the “carried interest” has been from New York Senator Charles E. Schumer and other Senate Democrats that are motivated to protect contributors who have donated millions to Democrats’ campaigns.
As a resident of San Francisco’s Sea Cliff neighborhood, where the average home price is $3 million, Steyer raised $270,000 to support Hillary Clinton’s “It’s Your Time” campaign for President by inviting 100 friends over for coffee last month. Presumably, many of those “friends” are fund managers that have been beneficiaries of the carried interest loophole.
But a month later, and slumping in the polls, Hillary Clinton voiced her opposition to the carried interest loophole when she launched her presidential campaign on June 12 with the statement: “While many of you are working multiple jobs to make ends meet, you see the top 25 hedge fund managers making more than all of America’s kindergarten teachers combined,” yet “paying a lower tax rate” than teachers must pay.
Committed to contributing at least as much as he did in 2014 to support Democrats and his climate change agenda, Steyer is scheduled to host an even bigger fund raiser for Clinton on Friday, June 19, presumably with even more of his uber-wealthy friends that are prime beneficiaries of the carried interest loophole.
Forced to back Hillary’s comments, Steyer reluctantly told the San Francisco Chronicle that although the issue is not the central theme of the Presidential election, “you don’t really need to strain yourself to think people who make more money should be paying a higher (tax) rate than people making 100th as much.”
Clinton’s and Steyer’s support for killing the loophole that primarily benefits Democrats will be easy for Republicans to support. But forcing the party to back their campaign pledge may seriously undermine what could have been a big source of fundraising cash for Democrat House and Senate candidates in 2016.