I’ll admit this to you. I watched this interview yesterday and he mentioned carried interest, and I wondered how many of you remembered me talking about how carried interest is charged, what it is. It was in a discussion we had on the program about asset wealth versus income wealth and how the asset wealthy, the really rich, are unaffected by any of Obama’s tax increases. The Warren Buffetts, the Bill Gateses, the people who, when Obama says the rich aren’t paying their fair share, the people they’re thinking about, the really truly wealthy, are not subject to Obama’s tax increases because they don’t pay income taxes. Hedge funds are notorious. Hedge funds are allowed to calculate and categorize their income as carried interest, and carried interest has a 15, I think it now may be 20% tax rate on it as opposed to the 39.6 tax rate for high on income.
I read a piece to you, an excerpt from a piece, Michael Arrington, who was one of the founders of TechCrunch, and he was gloating in part over how he’s a carried interest guy, he’s asset wealthy, and for all this talk about raising taxes, he wasn’t gonna get hit. Now, his column makes the point that he doesn’t think that’s fair, doesn’t think it’s right, but that he’ll take it, he’ll take it.
“Most of the money I make now comes from investments from CrunchFund. And the vast majority of that is what’s called carried interest. Even though I’m investing other people’s money, the government calls it a capital gain. So instead of paying 39.6 percent on that money (I won’t call it income), I pay only 15 percent (or maybe 20 percent under the new rules — it isn’t clear to me). In other words, income is a sucker’s game. Carried interest rocks. Everyone wants the rich to pay more in taxes. They’re thinking about Mitt Romney and Warren Buffett when they say ‘rich people.’ But really rich people like that are totally protected. Their accumulated wealth can only be touched by inflation. And if they’re in the hedge fund game, most of their ‘income’ is taxed at just 15 percent,” carried interest.
I wondered how many of you remembered this discussion that we’ve had and the differences between asset wealth and income wealth, and there’s gonna be less and less income wealth as income taxes rise. The greatest enemy to the accrual of wealth, or the accumulation of wealth, the greatest enemy is the progressive income tax. The more you earn, the higher your tax rate, the less you keep, the longer it’s gonna take to get wealthy, and that’s by design. But the asset wealthy are untouched. So when Obama mentioned carried interest, that was something new, and the hedge fund guys aren’t gonna like it, and the Buffetts and those guys aren’t gonna like it. Now, whether he follows through on it is another matter, but he mentioned it.