VICTOR FLEISCHER: OPPONENT OF ‘CARRIED INTEREST’

“The person most responsible for inspiring the movement against the carried-interest tax loophole is Victor Fleischer, a tax-law professor at the University of San Diego School of Law. Fleischer, the son of two college professors in Buffalo, became aware of the loophole in the late nineteen-nineties, when he was working as a tax attorney at Davis Polk, in New York. Fleischer does not consider himself particularly liberal. He is motivated, he told me, by a basic idea. ‘It’s important to think about how the tax system treats people. The tax system has to fund the government and the government has to do things for everyone.’

“For more than a decade, Fleischer has argued that the loophole contributes significantly to income inequality, by inflating what he calls the ‘alpha income’ of financiers in the top one per cent of the one per cent. In legislative circles, he is among the foremost authorities on the issue.”

Alec MacGillis, “The Billionaires’ Loophole,” New Yorker, March 14, 2016, pp: 64-73.

RICHEST PAY TAXES AT A LOW RATE

“In 2006, [Victor] Fleischer, then an untenured professor at U.C.L.A., circulated a research paper, his first on the carried-interest loophole, called ‘Two and Twenty.’ (It was published two years later, in the New York University Law Review.) He argued that the compensation scheme in private-equity firms meant that partners were not taking the kind of risk for which the capital-gains tax was designed. ‘If the fund does well, the managers share in the treasure,’ he wrote. ‘If the fund does badly, however, the manager can walk away.’ He noted that some partners were even taking a portion of their management fees in the form of carried interest, to increase the tax advantage. ‘This quirk in the tax law allows some of the richest workers in the country to pay tax on their labor income at a low rate.’”

Alec MacGillis, “The Billionaires’ Loophole,” New Yorker, March 14, 2016, pp: 64-73.

BLACKSTONE BILL

“Max Baucus, of Montana, and the top Republican, Chuck Grassley, of Iowa, produced a bill to close one part of the loophole, which covered the corporate taxes of publicly traded companies. It was nicknamed the ‘Blackstone bill,’ because that firm [the Blackstone Group] was then preparing a $4.7-billion public offering. Senator Barack Obama was one of the bill’s four co-sponsors.”

Alec MacGillis, “The Billionaires’ Loophole,” New Yorker, March 14, 2016, pp: 64-73.

RENEWED VALUE OF ‘CARRIED INTEREST’

“Before the two-thousands, the taxation of partnership income had never been cause for public debate. It became largely moot in 1986, when a tax-reform deal signed by Ronald Reagan equalized the rates for capital gains and top-bracket ordinary income. But George H. W. Bush and Bill Clinton raised taxes on ordinary income, and Clinton, in 1997, cut the tax on capital gains significantly. Five years later, George W. Bush cut rates on both kinds of compensation, and there was, once again, a big advantage in having one’s pay categorized as capital gains. And a growing industry was poised to profit from that distinction.”

Alec MacGillis, “The Billionaires’ Loophole,” New Yorker, March 14, 2016, pp: 64-73.

$3 MILLION BIRTHDAY PARTY

[David Rubenstein of the Carlyle Group is “more modest than counterparts such as [Stephen] Schwarzman, [in 2016 CEO of the Blackstone Group] who in 2007 threw himself a now infamous three-million-dollar birthday party at the Park Avenue Armory, in New York, and who spends more freely in politics, especially on Republican candidates.”

Alec MacGillis, “The Billionaires’ Loophole,” New Yorker, March 14, 2016, pp: 64-73.

SEVEN RECEIVED CARNEGIE MEDAL OF PHILANTHROPY

“One afternoon last October [2015], [David] Rubenstein and his mother gathered . .  . .to receive the Carnegie Medal of Philanthropy, along with seven others, including Microsoft’s co-founder Paul Allen and the Utah industrialist Jon Huntsman, Sr.” 

Alec MacGillis, “The Billionaires’ Loophole,” New Yorker, March 14, 2016, pp: 64-73.

GOSPEL OF WEALTH

“In 1889 Andrew Carnegie [the Pittsburgh steel millionaire] published The Gospel of Wealth, his Gilded Age manifesto. He believed that concentrated wealth was essential to capitalism, but that much of that wealth must be given away, in order to maintain a ‘reign of harmony’ with the poor. . . . . Warren Buffett and Bill Gates frequently invoke Carnegie when they speak of their Giving Pledge campaign, which commits billionaires to giving away at least half their money. A hundred and forty others have signed it, including [David] Rubenstein, Carl Icahn, Michael Bloomberg, Mark Zuckerberg, and Elon Musk.”

Alec MacGillis, “The Billionaires’ Loophole,” New Yorker, March 14, 2016, pp: 64-73.