Today, Senator John Kerry and Congressman Rahm Emanuel (D - Ill.) criticized the White House for opposing reform that would close a tax loophole that allows hedge fund managers and CEOs to defer compensation offshore. In a released statement on H.R. 6049, the Energy and Job Creation Act of 2008, the Administration says it "strongly opposes" the deferred compensation provision. This provision is based on the Offshore Deferred Compensation Reform Act of 2007 introduced by Kerry and Emanuel on October 18, 2007. The legislation was introduced in response to news accounts of U.S. hedge fund managers being able to defer billions of dollars of compensation offshore. The closing of this loophole would raise $24 billion over 10 years.
"Hedge fund managers and corporate CEOs can't be allowed to avoid paying their fair share of taxes, leaving hard working Americans to foot the bill. We need to return fairness to the tax code," said Senator John Kerry. "The Administration has missed a golden opportunity to stand for tax fairness."
"This is a simple issue, if middle-class taxpayers that are saving for college or their retirement can't avoid paying taxes by deferring millions offshore, neither should anyone else," said Emanuel. "This is about what's fair. Honest middle-class American taxpayers who pay their taxes deserve a tax system that puts them first."
Most Americans can defer income through a qualified retirement (e.g. 401k) and individual retirement account (IRA). In 2008, an individual can defer up to $15,500 in income into a 401(k) or similar accounts, and an additional $5,000 in an IRA. By contrast, U.S. based hedge-fund managers who operate offshore investment funds can defer unlimited amounts of their compensation. While the deferrals technically comply with current law, there are clear inequities in the amounts that middle-class American can defer through mainstream tax incentives for retirement and what high-income Americans can defer through offshore corporations.
According to an annual ranking of the top 25 hedge fund earners by Institutional Investor's Alpha Magazine in 2008, the average amount earned in 2007 was $892 million.