Carried Interest

I, along with (seemingly) President Obama, have long been an opponent of the “carried interest” tax treatment on the earnings of hedge-fund managers (for my detailed argument, see: Fewer Happy Returns).  In fact, I believe that this has been one of the driving forces behind our President’s “fairness” obsession to raise taxes.  (Or maybe he is just using it as a convenient excuse?)  This January he already has gotten the capital gains rate increased from 15% to 20% … I suspect, among other things, in order to increase the taxes on carried interest … i.e., tuck it to hedge fund managers.  But, in the process, he is also screwing ordinary middle-class investors.

However, of late I have been curious about how this favorable tax treatment came into being.  I first went to Wikipedia (see: Wikipedia Entry ) where I did not find its genesis … but it does say that it has been an issue since the mid-2000s.  My suspicion is that this tax treatment was initiated within the IRS itself.  As per the Wikipedia entry, there apparently were some unsuccessful attempts by the Democrats to erase this rule in the 2008 to 2012 time frame.  Moreover, there was actually such a law passed in the Democrat-led House of Representatives in 2010 … see: Gibson Dunn Comments.  Curiously, it apparently died (as most things did) in the Harry Reid (D, Nevada) controlled (with an iron hand) Senate.  So, like many controversial issues, the Democrats have been able to have their cake and eat it too.