Alec MacGillis’ piece “The Billionaires’ Loophole,” published March 14, 2016, ostensibly explores the fairness of the carried interest tax loophole, a giveaway to fund managers that “helps” increase their capacity to charitably fund projects that the government isn’t able to complete. The help comes in the form of preferential tax treatment which allows fund managers to pay a capital gains rate of 20% on income that by any reasonable measure should be considered “ordinary income.”
"There’s nothing patriotic or philanthropic about subverting the fabric of our democracy."
As a case in point, MacGillis (who interviewed and quoted me in the piece) focuses on billionaire David Rubenstein, whose self-proclaimed “patriotic philanthropy” helped repair the Washington Monument after an earthquake and build a gallery to house the Magna Carta, among other things. In his piece, MacGillis offers a detailed history on the loophole and the rise of Rubinstein through the ranks of America’s wealthiest citizens, but he fails to convey the important truth about the “Billionaire loophole,” which is that as commendable as Mr. Rubenstein’s giving may be, it is no justification for a tax loophole that benefits only a few thousand millionaires and billionaires.
On one hand, Rubinstein uses his wealth to preserve various artifacts of American history. On the other, he uses his wealth to convince lawmakers to maintain a preferential and fundamentally unfair tax status for himself and other millionaires and billionaires. There’s nothing patriotic or philanthropic about subverting the fabric of our democracy.
MacGillis does not go far enough in detailing the extent of this corruption as it relates to carried interest. He does note how Rubenstein and other private equity fund managers worked to block Senate attempts to kill the loophole and quotes John Boehner, who when asked about Republican congressman Dave Camp’s 2014 effort to overhaul the tax code and kill carried interest replied, “Blah, blah, blah.” But he makes no mention of the fact that Boehner’s former Chief of Staff Mike Sommers was recently named president of the Private Equity Growth Capital Council (PEGCC), a trade association for Wall Street fund managers that is at the center of the fight to defend the carried interest loophole.
He also fails to mention that Ken Mehlman, former Chair of the Republican National Committee, is the Chair of the PEGCC. It’s pretty clear that private equity leaders understand there is no intellectually justifiable reason to keep the loophole open, so they are pulling in top influence peddlers to do the job for them. If the issue runs deep, MacGillis’s piece doesn’t reach its depths.
It doesn’t do to well in the shallows either. The basic premise of the article deserves reexamination. MacGillis asserts that the loophole “helps” Rubenstein perform philanthropic acts by giving him more money with which to perform laudable acts, but if Rubenstein’s net worth is $2.6 billion, his gift of $7.5 million to help repair the Washington Monument amounted to only 0.29% of his net worth. This is the equivalent of a person with a net worth of $100,000 giving away only $290. It is proverbial chump change to a billionaire.
And can we consider the great hypocrisy of Rubenstein paying to repair the Washington Monument? General George Washington led a war, costing thousands upon thousands of lives, that was waged over the very issue of unjust taxation. Two hundred and thirty years later, the cancer of money in politics — as epitomized by the gross wealth and political power of players like Rubenstein — threatens to destroy that very same democracy. People like Rubenstein metastasize that cancer.
This brand of injustice deserves a much stronger treatment than was provided in MacGillis’ piece. The carried interest loophole is the poster child for the problem of money in politics. This issue cuts to the core of our democracy. It requires journalistic straight-shooting, not equivocation. If Americans are to have any faith in our government, leaders must close this loophole immediately. Stalling its closure is tantamount to subverting our democracy. Rather than relying on “patriotic philanthropy” to save the Washington Monument, we should make every effort to actually realize the fundamental principles for which our first president fought.