06/14/2010 01:01 pm ET Updated May 25, 2011

In The Public Interest : Close the Loophole. Really.

On Saturday Night Live, the "Weekend Update" sometimes includes a segment in which Seth Myers and Amy Poehler will report a fairly ridiculous - but true - story. And after every detail they reveal, they look at the audience and incredulously say: "Really!? Really!?"

Over the last several weeks, the misinformation campaign and unsupported claims about keeping certain tax loopholes in tact and the fact that some in Congress are buying it, has me thinking: Really!?

If you haven't heard, the "Loophole Closer" portion of the American Jobs and Loophole Closer Act currently before the U.S. Senate has become endangered. Last week we learned that the Senate may either dilute or even remove a section that would assure those who manage investment funds pay the same level of taxes as others with similar incomes.

Right now, fund managers pay only a 15% tax rate on their income, which is less than a teacher or a police officer.

The knee-jerk rejection of the reform by the affected industries and their supporters in Congress was to be expected. They called it a "tax increase" and said it would chase "talent" away from these industries. But really, it is simply a tax on income for doing a job.

As the many organizations who support this reform have pointed out (PDF), repeatedly, investors who are putting up their own capital, and making the investment in a business, will continue to enjoy the 15% capital gains rate. But those who manage other people's money and perform a service would be taxed at the same rate as similarly situated workers. Sounds logical enough.

But opponents to reforms and their lobbyists have come up with a whole host of other arguments to keep their cushy tax breaks, which are at best subjective, and at worst unfounded and disingenuous. This kitchen sink approach usually smacks of desperation - someone or some group that is out of legitimate ideas and willing to say anything to see what will stick.

Our colleagues at Citizens for Tax Justice put together a candid report addressing the wide and puzzling range of arguments against reform that should leave anyone who reads it thinking: Really!?

The report debunks real estate lobbyists' tales of the reform hurting low income people and their neighborhoods. These folks may actually pay the same tax rate as the fund managers if they make between about $8,000 and $34,000 per year. Because everyone knows that giving those who manage money for investors in a community a tax break is the foundation of any community development project - right? Not really.

And there are other myriad ways that the government already encourages investment through tax credits and Empowerment Zones, for those who CTJ acknowledges "invest in economically under-developed areas."

Citizens for Tax Justice also shoots holes through a high-profile executive's claim that the loophole disproportionately benefits minorities. The claims mirror the larger "talent" drain argument in that it will keep minorities from becoming fund managers. There is also a claim that closing the loophole will drain resources from minority businesses. CTJ cites "no evidence that a disproportionate amount of the total investments made by managers receiving carried interest are investments in minority businesses or urban businesses" or that a "disproportionate number of fund managers are minorities."

Incredulously, some reform opponents claim that the cure for cancer is at stake. Really. But as our colleagues point out, the pro-loophole crowd never quite manages to connect the dots.

Even if it's true that tax breaks for capital investments are needed to develop new health products and medicines, the assertion that this depends on lower tax rates for the people managing these investments is outrageous. The claim is that a tax break -- not for researchers, not for the people investing their money in new technologies, but for the people managing that money -- is necessary for life-saving technological breakthroughs.


Pretty soon we'll hear that the loophole is critical for ending puppy mills, funding soup kitchens and organizing Little League baseball.

And yet someone is buying it.

So now, the options on deck include a bill that wipes the reform off the table altogether, or a bill that will close the loophole to varying degrees over time and exempts energy partnerships.

The House and Senate have both finally acknowledged how unfair it is to single out these mega-millionaires for a tax break. That was a big step, especially in the Senate. But why stop short of the goal line? Why do it halfway? Is it only partially unfair?

If anything, the Senate should strengthen, not weaken a common sense reform. If Congress backs down, the message to families, to taxpayers and to every other business is that either Congress is buying the junk logic that fund managers are selling or that the $53 million they've spent lobbying since the bill's inception has worked.

It's in the public interest to finally close this loophole and stop subsidizing Wall Street at the expense of the rest of us. Really.