“We’re learning that there are some really rich people who are not paying that much, and that’s the way the system is designed,” said Leonard E. Burman, a professor of public affairs at Syracuse University and former deputy assistant secretary for tax analysis at the Treasury Department. “There is a question about what is the rationale for taxing capital gains at such a lower rate than other income.”
The policy has drawn criticism from the likes of billionaire investor Warren Buffett, who told Bloomberg Television on Monday that while he does not fault Romney for paying only what the law requires, the tax code should be changed.
Private-equity executives have become among the most aggressive at tax avoidance. “There is a contagion of tax sheltering” in the private-equity industry, says Brad Badertscher, a professor at Notre Dame who has studied tax liabilities of private equity firms. “They are willing to take risks in tax avoidance that others avoid, either for reputational reasons or because they lack the sophistication to do it.”
Badertscher and other academic experts emphasize that the tax breaks taken by Bain and other private-equity firms are legal. The deduction for capital gains income was intended to encourage risk-taking that could benefit the overall economy.
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