4 tax loopholes that encourage soaring executive pay

The carried-interest loophole

Annual taxpayer cost: $2.1 billion

Warren Buffett famously said that he pays a lower tax rate than his receptionist. That's due to the carried-interest loophole. Private hedge fund managers, for example, are generally paid a management fee and a share of any profits they generate. Most professional fees of this type are taxed as personal income, just like the money we make at our jobs, at rates of up to 35%. But the profits that hedge fund managers take home are taxed as capital gains, and the capital gains tax rate is currently 15%. "On every $1 million they pocket in 'carried interest,' in other words, hedge fund managers save about $200,000 in taxes," the IPS says. That's a big tax break for wealthy executives who make most of their money off of capital gains.

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