Post Carries On about Carried Interest and Tax 'Loophole'

     The words “lucrative tax break” or “loophole” conjure up thoughts of dishonesty or underhandedness regarding the tax code. Perhaps that is what the Washington Post intended to do in its August 3 story.


     Calling it the “most controversial tax break on Wall Street,” the Post promoted the idea of wrongdoing:


     “[It] is not authorized by any law and was never approved by Congress,” wrote the Post.


      “Wall Street’s Lucrative Tax Break Is Under Fire” co-authored by Jeffrey H. Birnbaum and Lori Montgomery suggested a “loophole” in the tax code has been exploited to the detriment of the middle class.


     “But at a time of rising income inequality and with Congress engaged in a desperate hunt for cash to expand aid to a disgruntled middle class, the Wall Street money men have become an appealing target for Democratic lawmakers and presidential candidates, who say the financiers are woefully undertaxed,” wrote Birnbaum and Montgomery.


     The National Taxpayers Union shared its opposition to modifying tax codes for “the Carry” with the MediaResearchCenter:


     “Capital income should be taxed at the lowest possible rate without respect to who the taxpayer is.  Characterizing the treatment of capital gains as a loophole for some taxpayers will lead to it being called a loophole for everyone.  Any concession to advocates of higher capital gains taxes is therefore more likely to embolden than to appease them.”


     CNBC’s Lawrence Kudlow has written that changing the tax code would have negative consequences on a stock market. Since Oct. 4, 2002, the Dow Jones Industrial Average has climbed from 7,528 points to 13,178 points on August 3.


     “In particular, these willy-nilly changes of the tax rules would have a chilling effect on capital formation, and could constitute the biggest attack on capital since the 1930s,” wrote Kudlow in his syndicated column on June 28.


     Just like the July 23 Newsweek attack on private-equity billionaires, the Post held up Berkshire-Hathaway CEO Warren Buffett as evidence that the “loophole” should be closed.


     “Even billionaire Warren E. Buffett, the third-richest person in the world, said it was wrong for him to pay a rate lower than the rate paid by his $60,000-a-year secretary,” wrote Birnbaum and Montgomery.


     But as columnist Larry Elder has shown, that’s not possible. Even in unusual circumstances assuming she was in the highest of possible tax brackets, the highest percentage she would pay is 25 percent.


     The Post mentioned efforts by congressional Democrats to raise the capital gains rate from its current 15 percent to 35 percent.


     “Several key Democrats, led by Rep. Sander M. Levin of Michigan, attacked the Carry as an unfair tax break that Congress would never have granted,” wrote Birnbaum and Montgomery. “He is pushing a bill that would subject it to a higher tax rate, the one paid by ordinary taxpayers.”


     However, the Post story didn’t mention the Bush administration’s threats to veto the bill.


      “This is not an administration that’s predisposed toward tax increases,” White House Press Secretary Tony Snow told The New York Post on June 27.


     The Post buried those who defend the current system until the next to last paragraph.


     “The general partner should be treated as the owner-proprietor because he raises the capital from the other partners and controls all decision-making,” said Jonathan Talisman, representing the Private Equity Council, to the Washington Post. “We reward this type of entrepreneurial risk-taking and investment in long-lived assets with favorable capital gains treatment.”


     Co-author Lori Montgomery wrote two one-sided stories about the alternative minimum tax for The Washington Post once, including a June 8 story. Montgomery wrote that “House Democrats [were] looking to spare millions of middle-class families,” by reforming the AMT, but left out the fact that many of those Democrats had voted against AMT repeal in 1999.