Private equity tax - put Gordon Brown in the dock

The moment private equity boss Nicholas Ferguson said that highly-paid executives in his industry pay a lower rate of tax that a cleaning lady, it was clear things were going to turn nasty.

And nasty it became last week when a line-up of private-equity’s most powerful bosses were roasted by Parliament’s Treasury select committee. The line of questioning pursued by the committee’s MPs repeatedly returned to the same issue – how much, or how little, tax are these fat cats paying. Committee member and Labour MP Sion Simon said: 'There is a sense you are taking the mick. You are too rich, you are making too much money and you are not paying enough tax.'

For any of you who haven’t been following the story the row centres on the use of generous tax breaks by some of  Britain’s wealthiest businessmen. These enable most private equity partners to pay tax at 10% or less on their profits, whereas the average cleaning lady has to pay 22% on their incomes.

The MPs clearly think they are on to a winner here: their anger does reflect a swathe of public resentment. But what seems to have been missed is that the private equity chiefs aren’t doing anything wrong: they are just making the most of the tax system, just as we all should. (To find out how you could pay as little tax as the super-rich click here).

If anyone is at fault it’s Gordon Brown and his flunkies at the Treasury who created the tax system that the private equity chiefs are legitimately exploiting. It was Brown who introduced the taper relief, which reduces capital gains tax to 10% for private firms and makes it possible for private equity partners to pay so little tax. In 2003 he even did a deal with the private equity industry – called a memorandum of understanding – which allows the bulk of their earnings to be treated as a capital gain rather than income. Without this, taper relief wouldn’t apply.

As Brown moves on, he has left the country with a tax system that is complicated, inefficient and – in some cases - unfair. Rather than expending their energy attacking the private equity chiefs the Treasury Select Committee might use its time better by exploring ways to make the tax system simpler and fairer for all.

If you've got any suggestions about how the tax system could be reformed tell us about it here.

Comments

[Frank Upton]

It's the cleaner who should pay less tax, not Mr Ferguson who should pay more.

[Shan]

The personal allowance is way overdue for an overhaul. It originally meant that poor people on subsistence incomes didn't pay income tax. We should be able to earn at least £150 a week before paying income tax. Currently the personal allowance is around half that much.

This would take a lot of burden off employers of low paid staff and would do a great deal for child poverty as it would be possible for a great many part time workers generally mothers to work without paying income tax.

£150 a week is hardly living in luxury, it's very basic. All but the poorest would pay a small amount of tax but there would be little need to beg for family credit and other humiliating top ups. So a whole lot of expensive and obstructive tax bureaucracy would be avoided too.

If the personal allowance is less than £150 a week as it is today what is it supposed to be?

[E Franks]

It amazes me how G Brown can posture as such a caring and moral person when he has been essentially number two in the present 'New Labour' government for its entire lifetime. The country is in ribbons in terms of economics, crime, education, social wellbeing, world standing, immigration and the NHS is broke. Separate and advantageous situations exist for Scotland, Wales and NI, and national positive discrimination is evident in major organisations and government departments yet G Brown dares to talk of democracy and being British. The economies, and welfare of certain English regions have suffered relative neglect but I do not expect him to own up to that, or make much change. The important thing for Gordon will be to keep Scotland, Wales and NI 'on side' at all costs. Alex Salmond need not worry about 'working for the best interests of Scotland' Gordon will not switch the focus to English regions.

[T Kerry]

I am 71, my pension had 5% increase p.a. built into it, but it is still capped it at 3% or RPI. When will this cap be lifted, Gordon Brown!!!??? Legal and General say they are holding the pension they have not been able to pay me, but where is it? I have asked them how and where the unpaid pension is being stored, and when will it be repaid, but their answer is in stock paragraphs and no help to me!!

[johnsons]

True-My personel experience,I have always found it easier to buy than to sell until now. I would go into areas that I had interest in, do the same research that you have learned from my materials, and buy what I wanted. Finding someone to buy these properties took time and sometimes great effort that is, until the internet.Everyday there are new ways to earn huge profits over the Internet with Real Estate.

[Finance guru]

Isn't it more important to keep the incentive system that will maintain the entrepreneurial spirit ?

After all we became the rich capitalist because of money grabbing enterprises.

[Mark Housley]

This guy is obviously a socialist and desires income redistribution. I make $50K a year and I'm not happy about my tax bracket of 15%

EVERYONE - whether you make $10K a year or 100M a year should pay 10% flat income tax. No one pays more, no one pays less.

It's only fair.

[Carlos Kleiber]

Treating carry as a capital gain is tax fraud if the amount invested by the General Partners is not in proportion to the whole capital invested. Inland Revenue should look at this retrospectively. The non-domicile status of GP's should also be challenged as they runs these funds from the UK.

[Steven]

Buffet said: “You could take that $30 billion and give $1,000 to 30 million poor families. Or should you favour the 12,000 estates and make 30 million families pay an extra $1,000?”

I say: "You could also vote for the sort of Government that minimises its public interference and as a result does not need to steal that self-same $30 million from any of its hard working citizens".

[A.Gnana Prabu]

Politicians must remember to help poor families and the physically disabled. As a physically disabled person, I know the difficulties they face in life.

[Joyce Ann Moore]

I have for many decades said the rich keep getting richer while the hard working American public keep getting taxed on tax. It is a shame that our politicians think more about those in thier social calendar and major contributors than they do about the people who voted for them. It brings on the subject of the automatic raises our politicians get while fighting to keep minumum wage to bare nothingness. Or the term limits that allow for thier continuing to recieve the more generous benifits while people who worked thier entire lives barely get by and too often can not even afford thier medications needed to survive. But, to survive would mean our govrnment would have to continue to pay out those individual benifits and therefore would not be gaining funds for thier coufers, so why care about the little person in this country. Everyone knows the little people are not going to stand together to make a real change in our system. Also, while I am on a rant, what about the term limits that our politicians used to get elected as an issue and all of a sudden it is invisible. Go figure, I was right again. Plus, while you are taxing the little people that make up this great country why let our jobs go to differant countries. I mean, that does not seem reasonable that while taxing...you allow the resourses to pay taxes to fly away from the very people your taxing. Someone got kick backs big time on that one.

[Gene Powell]

A flat tax that cannot be increased without a national vote (a proposition presented to the nation for vote)would go a long way towards curing the nations depts. Perhaps Washington would learn some fiscal responsibility...

[A Ward]

People on low incomes would be worse off under a flat rate tax system as they are more vulnerable to the fluctuations in the cost of living; the wealthy tend to be more financially astute by definition, so tend to get more out of the tax system.

[Laura A. Scott]

I feel that everyone should pay an equal percent in income tax with tax credits for dependents,(children or disabled) and for charitable giving. By using an equal percentage, everyone gives equally yet obviously the lower income levels pay less and the higher income levels pay more. Example: If we use 10%; if you earn $100, you would pay $10, whereas if you earn 10,000.00 you pay $1,000.
There are too many loopholes and "strategies" in our complex tax codes that allows some to avoid paying tax. If we all pay our fair share, we would have the resources to take care of our needs.

Everyone though, needs to be a part of the solution. I agree with Mr. Buffett, our tax structure must be more equitable - however, I do not believe that the government has to require some to pay more tax than is necessary. In that arena, I believe in less government and more charity. For our infrastructure, defense, care of our soldiers, and schools we all share in that cost. For other social programs, we need to reach out to our less fortunate and encourage others to support the worthy organizations that provide for and help the poor. This is why I believe in tax credits for charitable giving. We are all called to give 10% which is over and above taxation. Everyone can do something - the saying "He who helps shall eat" illustrates alot of wisdom.

[AJV]

It was in an article that the average middle income family pays 40% of their gains in tax. This counts all taxes. Why do the rich only have to pay 20% real tax with all the loop holes in the tax system?

I think we should stop doing personal income tax all together and tax all businesses. The IRS would be a lot smaller and the businesses could pass some of the tax off in their product's price. Of course, the government would also have to place a flat profit tarrif so businesses here aren't screwed. I know trickle down economics doesn't work, but trickle up economics does work.

Or we could just have a flat tax minus the poverty line. So (gross income - poverty line) * flat tax amount. This means everyone gets a poverty line deduction that isn't taxed.

[Brett Kottmann]

Why is Mr. Buffet lying about the tax rates? It is impossible for his secretary to be paying an effectice rate of 30 per cent even if she failed to take any deductions whatsoever because her highest marginal rate (assuming she is single) is only 25 per cent, and that is only paid on the amount over $31,850.

If she takes the US average for deductions she should be paying an effective rate of between 10-15 per cent, lower than Mr. Buffet's rate.

It's time to come clean, Mr. Buffet!

[Thomas Dugger]

Tax reform. Exempt the first $30,000 of earned income or retiree income (earned or un-earned). No other exemption or shelters. Unearned income would all be taxed, unless you are retired. Tax the next $20,000 at 10%. Then 15% on next 50,000 and 20% over 100,000. That still gives incentive since that maximum tax rate is 20%. A person (secretaries, etc) making $60,000 a year would have a rate of under 6%. A person earning millions of dollars a year would be paying a rate just under 20%.

[Patsy Teagan]

At this time everyone is thinking taxes, but why not have a great group of rich folk get together and give money toward our national debt to lower it out of the goodness of their hearts? Or will the government call that a gift tax and tax them for being so generous? People love playing the lottery, the governor in the state of Mi. thinks all you have to do is ask for more taxes from people that have no jobs and that will solve our problems. Why not get the 10 most influential people to get together to come up with a way to pay all of America's taxes for 5 years, then make it a 10 per cent tax there after? Always allowing people that want to give more to the government with out taxing them for their good deed? When people need help, you would think the help would come to Americans first and then to other countries.... we always seem to give our money to other countries that expect it, rather than appreciates the help. When you take a person's pride in working for their own money, you lower the worth of the country as a whole. Poor people in America are not poor as much as there is so many people that are so rich, it makes everyone else feel poor. Feelings cause unrest, not republicans or democrats.... those are names to describe nobody.... individuals make decisions in America today. Thank goodness people can become so rich in America. That is my dream, one that I am sure I will never become, because when I have tried to start a good business, the state wanted to make sure they had their share... they didn't help me get a loan, they made sure taxes would keep me from my dream, while they offer all the loans that can be given to rich people that don't need help. We should start pushing the idea that everyone deserves to have dreams. Being rich is a huge responsibility that each and every person must have earned. I just wish I had the oportunity to help this country grow by doing the things I feel is important. Without being looked down upon for doing the best that I can do.

[GARY COLPEAN]

Government officials can give themselvs a Wage Reduction, the same as the majority of United State's Citizens! Economy rises and they get a raise; when the economy slips, Taxpayers Suffer the Loss not Government Officials. A Taxpayer looses his or her job they must pay their health benefits personnaly; a Government Official whether performing their job, or getting thrown out of office recieve their Health Care for the rest of their lives. I believe the Constitution was written; "A Government of the People, For the people, and By the People in God we Trust"

A good place to Start for a Tax Break would be to reduce the Rate for Government official's and stop the benefits for Government official's who do not fulfill their obliged duties.

Here's a good one; I pay taxes, get a refund for overpayment, and have to pay taxes on my own, hard earned money i got back from the government. How can you exactly say how much you actually pay for taxes; i cant disagree the Janitor or secretary paid 30% Taxes!

[r.v. adelman]

the entire tax code needs to be changed completely. I'm no tax maven, but almost anything else would be better ----simpler.

[Charles Halterman]

Dear Mr. Buffett,
The facts do not lie, but liers use facts.

[Dick]

If the dems and repubs would pull it together and have a flat tax at 15-20% pick a number we would be getting out of this hole we're in. What is happening to the dollar is pretty sickening. It won't be long before we have a 3 to 1 rate with the Euro. Oil will be $200/barrel essentially crushing our economy.

[Arvid Nybroten]

One has to wonder that if Brown and his cabinet are incapable of creating a just and efficient tax system how efficient they are in spending government money as well. The fault lies less with the rich than with Brown and his cabinet.

[flynnman]

All i have to say is i hear alot of complaining and nobody doing anything about it if the people ban together we might be able to change it we want your vote

http://www.nonaynever.net/page1.aspx

[Lola]

If my last tax rate was reduced to 10% flat fee, I would almost have enough to do some much need repairs.
It boggels the mind how mortgage lenders qualify you on gross income, that's what i woud like to take home. So, my income would probably be increased by 20% if I had a tax rate of 10%. Why is it that the middle class working man always have to cary the burdens of their country. Can Mr. Buffet send me a check, I don't mind being someone's charity case, or can he tell me how to get rich with $500.00.