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Dear President Barack Obama,
I am writing to tell you about what I think of Carried Interest (section 7701(0)). As you may already know, there was a ruling made in the court case Dagres v. Commissioner where the Treasury Department has been given an opportunity to write regulations that raise the taxes on Carried Interest. The decision on Carried Interest affects both the fund managers and the people who pay the fees for these fund managers. There needs to be less of a tax break for those who are the fund managers because the Carried Interest is giving them too much. Right now, the top rate on the gains that fund managers owns is 15 per cent, and that makes the tax applied to Carried Interest less than half of the 35 per cent top rate for ordinary income. There is way too much leeway to these fund managers who receive about 20 per cent of the profits of the funds and are only taxed a maximum of 15 per cent on those profits. These are essentially treated the same way as an investment is treated. But Carried Interest is not an investment and should be taxed as part of the fund manager’s income taxes. That would put it in the ballpark of being taxed at up to 35 per cent. That’s obviously something the fund managers wouldn’t want, but the extra tax revenue that could be attained by closing this tax loophole would mean that every day citizens such as myself, who is forced to pay up to 35 per cent of their earnings on taxes would have less of the tax burden, (Norris, 2012). These rich fund managers would be taxed more and this would make it so the general population didn’t have to pay as much. Either that, or the extra tax revenue could be put into social programs, for example.
In the Dagres V. Commissioner, Dagras earned $10.9 million in compensation while also netting $43.4 million in capital gains from 1999 to 2003. These capital gains were garnered through Carried Interest. The case was brought before the courts because Dagres’ share of the profits indicated that he was involved in a trade or a business, or that he was acting as an investor. And the Internal Revenue Agency said that he was acting as an investor. However, because of the Carried Interest law, the Tax Court disagreed with the ruling and according to Treasury Regulations. Dagres was allowed to have his deduction because his Carried Interest was considered compensation for the trade, (Carried Interest, 2011). To me, this is outrageous. The money he earned was clearly in response to his responsibilities as a fund advisor. This should obviously be designated as income, as it is a regular pay he received for doing his job.
Mr. Obama, I know that you have already pushed for a change on the Carried Interest, and Congress has backed off twice in the past on this topic, but I urge you to keep fighting to ensure that these fund managers aren’t going to profit, while the general population continues to suffer. In order to correct the injustices that have happened in cases such as Dagres v. Commissioner, there needs to be a repeal of the Carried Interest legislation so that the super wealthy aren’t given tax breaks as the rest of us continue to suffer. As the fiscal cliff approaches, we need to make sure we are doing everything we can to ensure that the tax cuts to the wealthy are deemed unacceptable, so that we can begin to lower the taxes that are charged to people of modest- to low-income. This is also one way to help our economy recover from the recession. Without taking away some of the privileges that were given to the wealthy by the George W. Bush administration, there will be no justice for this country and the economy will continue to suffer.
“’Carried Interest’ in the Cross Hairs.” (2011, Aug. 6). The Wall Street Journal.
Norris, F. (2012, Sept. 13). “A Tax Tactic That’s Open to Question.” The New York Times.