The Romney campaign has steadfastly refused to explain which tax deductions and loopholes it plans to limit in order to cover the cost of its proposed 20 percent reduction in tax rates. Instead, both Romney and his running mate Paul Ryan simply assert that they will remove enough tax deductions for the wealthy to pay for their tax cut.
However, a Tax Policy Center analysis found that even if Romney and Ryan eliminated every tax preference for the wealthy, they still wouldn’t be able to implement their tax plan without either adding to the deficit or raising taxes on the middle class. And during an interview with Bloomberg Television’s Peter Cook today, Ryan refused to call for closing at least one loophole for the wealthy — the so-called “carried interest” loophole that lets wealthy hedge fund managers and private equity managers (including Romney) dramatically lower their tax rate:
COOK: Let me ask you about one specific here. I’m going to try to pin you down on one that people talk about a lot, at least specifically on Bloomberg. Carried interest, the 15 percent tax rate on carried interest. Private equity managers, hedge fund managers take advantage of that. Under a Romney-Ryan administration, should they expect that’s going to go away?
RYAN: Look, we can get into an arcane argument about the definition of income, but our interest is not taxing capital more. Taxing capital more means less savings in the economy, means less seed corn for small businesses for economic growth, and activity. By raising the tax rate on capital you hurt jobs.
The carried interest loophole allows wealthy fund managers to treat the income they receive for managing other people’s money as investment income, and thus have it taxed at 15 percent, instead of the top income tax rate of 35 percent. These managers aren’t taking a risk with their own money, yet they get treated like they are for tax purposes.
As Citizens for Tax Justice explained, carried interest “is clearly compensation for services and not a return on investment,” and thus private equity managers “should pay income taxes at ordinary rates on their compensation, just like everyone else.” Romney himself benefited from the carried interest loophole to the tune of $2.6 billion in lower taxes over the last two years. Yet neither Romney nor Ryan can bring themselves to call for doing away with this particular tax giveaway.