spares a small band of the country's richest and most powerful financiers $6 billion a year in personal income taxes ...

Wall Street's Lucrative Tax Break Is Under Fire By Jeffrey H. Birnbaum and Lori Montgomery The Washington Post Friday 03 August 2007

The most controversial tax break on Wall Street, known simply as the Carry, is not authorized by any law and was never approved by Congress.

Instead, it grew quietly over several decades, hinted at but never directly addressed in obscure court cases and arcane regulations issued by the Internal Revenue Service.

Unchallenged by lawmakers, it swelled into a benefit that, by one back-of-the-envelope estimate, spares a small band of the country's richest and most powerful financiers $6 billion a year in personal income taxes.

The astonishing cost of this tax break to the federal government has riveted attention on Wall Street's titans of the moment, the extraordinarily wealthy managers of private-equity firms and hedge funds. Until now, they have gone largely unexamined by Washington. But at a time of rising income inequality and with Congress engaged in a desperate hunt for cash to expand aid to a disgruntled middle class, the Wall Street money men have become an appealing target for Democratic lawmakers and presidential candidates, who say the financiers are woefully undertaxed.

At the heart of the dispute is the way the fund manager's profits are taxed. Known as carried interest, or the Carry, those profits are taxed as capital gains, for which the rate is usually 15 percent. That is less than half the 35 percent rate paid on regular income. ...