Quick, think of the most egregious tax loophole you’d like to see closed. Many people, and not just lefties, will think of the carried interest loophole, where hedge fund managers get to pay capital gains rates (~24%) on their earnings (which would otherwise face the top marginal rate of ~40%). A fine choice, widely perceived to be unfair…even Trump says he wants to close this one.
To do so would save just short of $20 billion over 10 years.
Might I interest you in an equally egregious loophole that would save ten times that amount? Got your attention, there, no?
It’s the NIIT, or net income investment tax, a 3.8% surcharge on the investment income of wealthy households, introduced as part of the Affordable Care Act and intended to help strengthen Medicare’s finances. I run down the details over at WaPo–pass-through businesses, which increasing account for business income, have been avoiding this tax–but by closing this loophole and channeling the revenues into the Medicare Health Insurance Trust fund, which was the intention of the NIIT from its conception, we would significantly increase the solvency of this venerable social insurance program.
And don’t give me the “this-Congress-will-never-go-there” business. That’s a big “duh.” (This Congress won’t even close the carried interest loophole, and that one really doesn’t have a lot of friends down here.) The shut-down-the-NIIT-loophole movement begins here. It may not end in my lifetime, but good Buddhists worry little about such trivial and artificial limitations.