New CTJ Fact Sheet Debunks Myths about the Private Equity Tax Loophole


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New CTJ Fact Sheet

As Warren Buffet recently stated, it's an outrage that Americans who are paid millions or even billions for their labor can be subject to lower federal tax rates than their middle-income receptionists. This is particularly true of private equity fund managers, the multi-millionaires who get a special tax break for the compensation they receive for managing people's money.

A receptionist, a firefighter or a police officer who is unmarried and earns $50,000 a year pays a federal income tax rate of 25 percent on a large share of her income. That's after she pays around 15 percent of all of her income in federal payroll taxes. But thanks to a loophole in the tax code, private equity fund managers pay only the 15 percent capital gains tax on what they call "carried interest," which is usually most of their compensation. This is despite the fact that the capital gains rate was enacted for those who invest and put at risk their own capital, not those who manage other people's money.

Congressman Sander Levin has introduced a bill (H.R. 2834) in the House of Representatives that would close this tax loophole. The private equity industry and its lobbyists have already started an aggressive campaign to confuse the public about this issue. Get the facts in CTJ's new fact sheet.

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