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Home Publications Blogs Beat the Press Is Eliminating a Tax Break a New Tax?

Is Eliminating a Tax Break a New Tax?

Friday, 25 June 2010 05:25

The Washington Post reported on the Senate's refusal to extend unemployment benefits. At one point it referred to plans to change the tax treatment of income earned by managers of hedge funds, private equity funds, and real estate funds as a "new tax."

Currently, much of the income of these managers is taxed as capital gains even though it is paid in exchange for work. As a result, many of the richest people in the country are paying a 15 percent tax on their earnings (if they cash them out -- there is no tax paid on money left in the fund), instead of the 35 percent rate that high earners would otherwise pay (39.6 percent after the end of the year). The proposed change in the tax code would treat some of their earnings as labor income subject to ordinary taxes. It is not clear that change should be described as a new tax.

The article also discusses the additional debt that would incurred if the unemployment extension bill was approved by Congress. It tells readers that the proposal would have increased deficits over the course of the decade by $33 billion. It would have been helpful to note that this is equal to approximately 0.02 percent of projected GDP over this period.

Comments (2)Add Comment
written by izzatzo, June 25, 2010 9:41
But officer, why not write the speeding ticket based on total miles per hour instead of incremental miles per hour? So for doing 90 in a 75 zone, the ticket would not be for the additional 15 miles per hour over the speed limit, but on a pro rated average basis starting from zero. That way speeding tickets would be a fair flat tax, neither regressive nor progressive, and not suppress incentives to drive efficiently. Don't you read Econ 101?

Officer: But that would mean everyone driving within the speed limit would have a new tax and pay most of the revenue, and everyone driving over the limit would get a tax break.

Driver: Exactly. I have to go now, I'm late for a hedge fund meeting.
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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.