Why is Congress protecting a tax code that benefits the rich?

By David Ignatius
WashPost
Thursday, November 18, 2010

It's a strange populism that denounces Wall Street in one breath and, in the next, shouts down tax changes that would treat the financiers' incomes like those of everyday folks.

But that pro-billionaire version of populism seems to have won big in the midterm elections. And it probably means the demise of a congressional effort to strike down one of the most outrageous provisions of our messed-up tax code, which is the special treatment of "carried-interest" compensation that's paid to many investment fund managers.

This loophole is so unfair that it gets criticized even by some of the tycoons who have benefited from it, such as former Treasury secretary Robert Rubin and other prominent investors I've queried. Basically, it taxes the money paid to managers of private-equity funds and similar partnerships at 15 percent, as if it were risk capital, rather than at ordinary income rates of 35 percent. (I'm assuming that the neopopulist Congress will balk at letting that rate rise to its old, pre-Bush level of 38 percent.)

As is so often the case with policies that benefit big business, the carried-interest break survives by invoking small business. It's argued that if congressional reformers have their way, they will gut compensation for all the little mom-and-pop partnerships that depend on carried interest. (Not to mention the hard-pressed little guys who own oil partnerships.)

(More here.)