On April 15th, roughly 160 million taxpayers faced up to Tax Day in one way or another. For most Americans, filing taxes leads to a refund of about $3,000. One would think Americans would look fondly on this exercise, but the reality is that most of us do not. The IRS is the least popular federal agency in the country for good reason. Understanding this, it’s hard to miss the irony of progressives celebrating Tax Day by making a whole week out of it.
On Wednesday, President Biden proposed, among other policies designed to make Americans poorer, higher taxes. Similarly, on Tax Day itself, Senators Tammy Baldwin, Sherrod Brown, and Joe Manchin reintroduced a bill to tax certain investment income as ordinary income. Known as carried interest, this tax provision has been a perennial bête noire of the left since it entered the tax zeitgeist courtesy of a law review article published in 2008.
At root is a somewhat complicated tax policy related to how capital gains should be taxed for certain business partnerships. Some of these partnerships are investment funds. The combination of tax complexity and financial services often makes for challenging politics. The progressive left has a playbook for this issue and they’re following it step-by-step.
The first step is to demonize the financial services industry, no matter how obscure the connection. At issue is whether the capital gains that accrue to general partners in investment funds should be taxed as long term capital gains. The second step is to obscure the economics and shorthand this somewhat complex tax issue to ol’ reliable: Hedge funds need to pay their fair share!
The trouble here is that hedge funds don’t generally hold investment positions anywhere near long-enough to qualify for long-term capital gains treatment of their positions. As such, this is effectively a non-issue for them. The second problem is that these policymakers will never define what a “fair share” actually is. If they did, they’d admit a theoretical limit to their enduring call for higher taxes, particularly on investment.
The tax increase proposed by Senator Baldwin and her allies is a relative drop in the bucket compared to the additional $5 trillion in higher taxes proposed in the Biden administration’s budget. But the revenue or the economics of taxes on investment was never the point – the press release is the point.
The tax increase from Senator Baldwin and company, cheered on by their labor union supporters and other liberal activist groups is just the latest in a long line of progressive tax policies that are utterly unserious.
One recent example served as a budget fig leaf for the somewhat inaptly named Inflation Reduction Act. The IRA included a new corporate minimum tax aimed at, you guessed it, making U.S. firms pay their “fair share.” It is important to note that this tax policy is so hopelessly complex that the IRS still can’t figure out how to fully implement it. Perhaps the tax’s progressive champions should take a note from history. The U.S. used to have a tax just like it, and soon abandoned it. Much as now, the tax was supposed to ensure “fairness.”
Meanwhile, again for “fairness,” the Biden administration committed the U.S. to a global regime of new corporate taxes. The result has been an unworkable mess for U.S. firms that will also lose revenue for the U.S. Treasury.
The progressive left has dusted off its playbook for tax policy: Propose hopelessly pointless tax policies targeting unfavored constituencies, all in service of “fairness.” For these policymakers, every day is Tax Day.
