Letter to the Editor: Capital Gains and Carried Interest

No one likes to pay taxes, but it’s comforting to know that we owe federal income taxes according to our ability to pay. Those with more income pay a higher percentage of tax on that income. Except for the exceptions …

For example, there is a difference between paying taxes on money you earn on the job, and income that comes from an investment. When you sell an investment for a profit, you owe a tax on the “capital gain”, which is lower than the rate for most “ordinary” income.

Thus, wealthy people who get most of their income from investments may pay a lower percentage of tax overall than people who get most of their income from work. A related example of preferential tax treatment is called “carried interest”, which allows some earned income to qualify for the lower “capital gains” rate. In this case, the main beneficiary is Hedge Fund Managers.

Over the years there have been efforts to reform this inequity, most recently by our Senator Tammy Baldwin and New Jersey Representative Bill Pascrell. They introduced legislation to end the “carried interest” tax break – which President Trump, as a candidate, vowed to tackle. But when this reform was offered as an amendment to the sweeping 2017 Tax Act that has mainly benefited the wealthy, it was rejected.

All of us, rich and poor alike, stand to gain from true reform of the tax code to eliminate the many avenues for the most affluent citizens to legally avoid paying their share of society’s costs. When large numbers of people suffer poverty, poor education, inadequate housing, lack of health care and aging infrastructure, we all suffer by living in a broken society. It becomes a world without hope for those trapped in the lower regions of the economy. Surely our country can do better?

Karen Wilson

Juddville, Wis.