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Home Publications Blogs Beat the Press Carried Interest: Shoe Salespeople Earn Capital Gains

Carried Interest: Shoe Salespeople Earn Capital Gains

Monday, 04 March 2013 23:38

It's extremely unfair that shoe salespeople have to pay taxes on their income at the same rate as other workers. After all, they must work with shoe buyers, achieve an alignment of interest, and then get them to buy the shoes. Clearly this means that they should be taxed at the lower capital gains rate rather than the ordinary earnings rate that factory workers and school teachers pay.

Yes, this is nuts, but because very rich people run pension and hedge funds, the NYT feels the need to treat this stuff seriously. Therefore it gave Steve Judge, the chief executive of the Private Equity Growth Capital Council the opportunity to say that shoes salespeople shouldn't have to be taxed at the same rate as everyone else. (Sorry, I meant rich equity and hedge fund managers.)

This one does not come close to passing the laugh test. The point here is very simple. When you get paid for work, whether you are school teacher, a shoe salesperson, or a hedge fund manager, this is earned income and should be taxed as such.

If hedge and private equity fund managers want to invest in their funds they are free to do so and can have their subsequent income taxed at the lower capital gains rate. This is really simple -- even a hedge fund or private equity fund manager should be able to understand this. It is not a complicated issue no matter how much people may get paid to make it complicated.


Note: Typo corrected, thanks Tom.

Comments (7)Add Comment
written by medgeek, March 04, 2013 11:11
This is a total scam, pure and simple. I never heard of Steve Judge or the Private Equity Growth Capital Council, but I'm off to surf the web to try to find out how much they contribute to political campaigns.
Real Difference
written by James, March 04, 2013 11:23
Between hedge fund mgrs and shoe salespeople is the former have politicians including NY or even NJ advocating for them. They also have lobby grps or plenty of media forums to broadcast their agenda.

Shoe salespeople would be lucky to still have a job let alone having any influential folks or talking-head to lobby for them.

Same thing and good example to your other post that $400K is not rich or barely rich enough for higher rate.

Meanwhile, $170K in networth is considered rich or well-to-do as an excuse to cut SS & Medicare.
written by David, March 05, 2013 7:13
... if these folks can force the adoption of the chained cpi, then they will be forced to pay Hoover level of income taxes.
The flaw
written by RueTheDay, March 05, 2013 7:39
The flaw with Judge's argument is that (in the abstract) at some point, the general partner in the fund had to have been given an equity interest in the fund. That equity interest has an inherent value, and at that point represents pure income (only increases in value from that point forward would represent a capital gain). Logically, they should be taxed on that initial grant of equity. If you want to argue that the grant of equity is purely notional and that the general partner is only compensated on the return received above and beyond a specified hurdle, then you are in effect arguing that the 20% in a 2/20 arrangement is no different than the performance-based cash bonuses received by millions of managers and commissions received by millions of salespeople across the country, all of which are taxed as ordinary income.
written by Tom MH, March 05, 2013 7:49
"shoe" not "show", first line. Otherwise excellent.
Why Does Dean Baker Want to Remove Tax Loopholes for Economic Cannibals?
written by Last Mover, March 05, 2013 8:33
Don't stop at equity and hedge fund managers. What about payday loan managers? In hard times they're actually what keep the economy going as a last resort for credit, surely as effective as equity and hedge fund managers.

In fact, why should they be taxed at all given the well known multiplier effect they have on jobs produced? Any economist or expert like Steve Judge knows as general unemployment increases, employment in overpaid fee scam markets actually increases as workers learn how to cannibilize each other.

Now is not the time to equalize tax rates. Cannibal jobs are better than no job at all. Workers should be encouraged with tax breaks to unite against themselves.
written by james rytting, March 05, 2013 11:41
Is the logic any different than saying you shouldn't tax my bonus, because I might not have gotten a bonus? In the same breadth Judge says that tax oppressing his ilk would raise a pittance,..., geeze, only 16.8 billion; that's just a little more than the 2012-2013 educational budget for the entire state of Colorado, for example. Maybe Judge, if he tries, can think of how to raise that low number to make it more meaningful.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.