Some of the big game on congressional Democrats’ tax-hiking safari are the managers of private equity firms. Democrats are ready to pull the trigger on legislation that would more than double taxes on these fat cats. But the jungle, like the economy, has an uncanny way of sensing danger and reacting accordingly.
A nonpartisan, mathematical analysis by a University of Pennsylvania law professor warns Democrats that boosting tax rates won’t guarantee a corresponding increase in federal revenue. Should Congress move forward with plans to confiscate more than one-third of these firms’ profits, called “carried interest,” executives will simply change the way they’re compensated to avoid the higher tax rate.
“Transactional structures are likely to change in response as tax rules change,” Michael Knoll wrote in his study. “Those changes are likely to reduce additional tax revenues.”
The cruel irony for Democrats is that constant tinkering with tax law has created the Byzantine code that gives businesses so many opportunities to avoid certain levies.
“We are looking into these issues as a basic issue of fairness in the tax code,” said Matthew Beck, spokesman for House Ways and Means Chairman Charles Rangel.
Fairness? If the federal tax code were streamlined and simplified, there would be no reason to seek out specific prey and plug it right between the eyes.
Democrats want these tax increases so Congress can “afford” to eliminate the alternative minimum tax, another bastardized levy that hits millions more middle-class households than lawmakers originally intended.
Here’s a novel idea: blow up the AMT, leave private equity firms alone amid the country’s growing credit crunch and let more American families save or spend their own money as they see fit. That might give the economy such a kick that tax collections would actually increase — just as they did when President Bush signed income tax cuts into law.