By Sean Ryan and Dennis Mehiel
Over the past few years, an elite group of investment fund managers have quietly reaped huge profits while paying lower tax rates than almost everyone else in the country. Their lobbyists pressured members of Congress and spread around campaign contributions. What did they get in return? Preferential tax treatment.
Using what is known as the “carried interest loophole,” these managers are allowed to avoid paying billions in taxes by classifying their income as capital gains. They are providing a service, and should be paying the normal tax rate of 39 percent, not the capital gains rate of 20 percent.
Today, the average teacher or nurse who puts in 40-plus hours a week pays the normal tax rate. A trucker who works long hours driving across the country, rain or shine, is taxed at the ordinary rate. Yet an investment fund manager who makes millions managing other people’s money pays a special capital gains tax rate. This practice is unfair, and it should make you mad.
Despite the fact that well-known politicians on both sides of the aisle – from Bernie Sanders and Hillary Clinton to Jeb Bush and Donald Trump – all agree the loophole should be closed, because of the stalemate in Congress, the Wall Street elite continue to cash in.
Economists estimate that closing the carried interest tax loophole would increase tax revenue by roughly $18 billion nationally. In New York alone, more than $3.7 billion could be reinvested in infrastructure, schools, housing and clean-energy alternatives.
So, where Washington has failed, Albany can step in. The additional revenue that our state could generate by taxing these salaries as ordinary income would be game-changing. In our view, there is no better place to start than in the leading state for investment fund managers: the Empire State.
A bill has now been introduced to close the carried interest loophole in New York, with the intention of using the newly generated revenue to fund strategic investments across the state. What better state to pioneer the closing of the carried interest tax loophole than the home of Wall Street itself?
The recaptured $3.7 billion would help to transform our state. We could help give our students and teachers more efficient facilities. We could repair roads and strengthen the bridges that our truck drivers utilize every day. Look no further than the benefits that the Buffalo Billion has created. Imagine if we could further that investment in Buffalo and replicate it in Rochester, Syracuse or Utica.
Most importantly, this revenue could be used to help build a stronger middle class and create a brighter future for our state.
Sean Ryan, D-Buffalo, represents the 149th State Assembly district. Dennis Mehiel is CEO of Four M Corp., and a member of the Patriotic Millionaires.