The House has tried to close the loophole three times but each time the Senate has killed the effort at the behest of their Wall Street donors. Robert Reich, Clinton's former Secretary of Labor explains it succinctly.
Several of these private investment fund managers, by the way, have taken a lead in the national drive to cut the federal budget deficit. The senior chairman and co-founder of the Blackstone Group, one of the largest private equity funds, is Peter G. Peterson, who never tires of telling the nation it faces economic ruin if deficits aren't brought under control. Curiously, I have not heard Peterson advocate closing this tax loophole as one way to further the cause of fiscal responsibility.This loophole leaves an additional subsidized amount of $20 billion in the hands of fund managers. They argue that a higher tax rate will discourage investment. This argument is to put it briefly, bullshit. If the investments are worthwhile, there is no reason why taxpayers should subsidize their risk especially with so many punitive cuts from local and state governments decimating teachers, health care and other services for everyone else.
Closing tax loopholes for billionaires may seem like a no-brainer, especially at a time when the nation is cutting back spending on the middle class -- slashing budgets that fund child care, public schools, and public universities. Tens of thousands of teachers are getting pink slips.