The Best Tax Code Money Can Buy

Among the celebrants at the inaugural balls will be top contributors to the President’s reelection campaign, but their real celebration will be April 15, when they continue to be the beneficiaries of a “tax loophole” Obama pledged to close in 2008—but that remains gaping wide open despite his rhetoric about now making “the rich” pay their “fair share.”

I guess it all depends on what kind of “rich” one is: Obama supporter apparently = “not so rich.”

In an analysis commissioned by the San Francisco Chronicle and produced by MapLight, a nonprofit that analyzes the effects of money and politics using data from the Federal Election Commission, many of the wealthiest who are also top Obama contributors came out unscathed by the provisions of the January 2 “Fiscal Cliff” tax code changes:

It is a clear example of how political contributions have a high return on investment. Millions in political contributions brought billions of tax breaks for some of the wealthiest people in America.

Those benefiting are private equity managers, hedge fund managers, and venture capitalists who typically are compensated largely through a 20 percent bonus they receive on the profits they make, known as the “carried interest.” Under current tax law, such bonuses are taxed at the lower, capital gains rate rather than at income tax rates that can be almost double.

Four years ago, Obama promised that he would end the practice of taxing carried interest as capital gains instead of as regular income. Such a change could raise an estimated $13 billion to $20 billion over the next decade, according to federal and industry figures, and affect 36,000 to 65,000 people. rated this a “broken promise” of his first term—and it looks to remain broken throughout the second as well:

Part of the reason this provision wasn’t changed, analysts say, is the financial power of this sector. In the Bay Area alone, employees of top money firms donated $6.7 million to federal candidates and political committees during the 2012 election cycle.

Many of the beneficiaries of this tax treatment have received other lavish rewards as well. Venture Capitalist Steve Westly, a top Obama campaign contribution “bundler,” not only headlined the Democratic National Convention, but has served on an advisory board to Energy Secretary Steven Chu and made a mint out of Obama’s “green” energy investments in firms he holds stakes in, including Tesla, which received a $465 million federal loan from the U.S. Department of Energy in 2011.

As far as tax breaks go, don’t get me wrong: I’m all for anyone keeping more of his or her own money, and I have no beef with anyone enjoying lower taxes. I object to hypocrisy and lies dressed up as “fairness.” Fairness is equal treatment under the law—not one law for you and another for me. King John learned it in 1215, and it would be fitting for Washington to learn it in time for Magna Carta’s 800th anniversary.

Mary L. G. Theroux is Senior Vice President of the Independent Institute. Having received her A.B. in economics from Stanford University, she is Managing Director of Lightning Ventures, L.P., a San Francisco Bay Area investment firm, former Chairman of the Board of Advisors for the Salvation Army of both San Francisco and Alameda County, and Vice President of the C.S. Lewis Society of California.
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