The carried interest loophole is just one of many ways the U.S. tax code offers preferential treatment to some Americans.

The U.S. tax code treats earned income from labor and investment income from dividends and capital gains differently.

If you are paid for performing a service (such as managing a company), your compensation is subject to ordinary income tax rates.

If you make an investment (such as buying the stock of a company), any profits you earn when selling that stock are subject to the lower capital gains tax rates.

Carried interest loophole allows people who manage investment funds, such as private equity funds and hedge funds managers, convert their compensation as if it were into lower-taxed capital gains, when it is actually derived from the labor and skill involved in managing other people’s investments.

Essentially, the partners in businesses that manage pools of money on behalf of investors are paid in two ways. One part of their income is a “management fee” for managing the investments. This fee is generally taxed as ordinary income.  The other part of the fund managers’ income is their cut of the fund’s profits. The fund managers treat their part of the fund’s earnings as a capital gain, subject only to the lower-taxed capital gains tax rate.

Investment managers typically take a management fee equal to just 2 percent of the assets they manage—plus a 20 percent cut of their investors’ profits. In doing so, they are able to shield the bulk of their income from ordinary tax rates.  As a result, theses wealthy fund managers have experienced disproportionately large income and wealth growth compared to everyone else.

Source:  Seth Hanlon and Gadi Dechter, “Congress Should Close the Carried Interest Loophole”, (Washington:  Center for American Progress, posted December 18, 2012), available at  https://www.americanprogress.org/issues/economy/news/2012/12/18/48469/congress-should-close-the-carried-interest-loophole/

Technology companies, such as Google, Facebook, Amazon, and TikTok, are not only social media companies. At their core, they are primarily massive data collection companies which collect massive amounts of individuals’ public and private personal information.

When individuals share vacation photos on Facebook or search for birthday gifts on Google or use TikTok’s mobile app to share activities with a colleague, this information is collected, manipulated and assessed for the monetary benefit of the social media company.

Privacy of individuals’ information, a major concern of citizens of Western Europe and the United States, and nonexistent for citizens of Communist China and the Russian Federation, are a growing concern.

“Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade.”
George S. Clason, Richest Man in Babylon

The real secret to compound interest is less about the amount that is saved, and more about the amount of time it is invested. One final advantage to begin saving and investing earlier rather than later is that the stock market presents a much better opportunity for long-term investors than it does for short-term investors.

Although nothing is ever guaranteed when it comes to investing, history shows that the longer you are invested, the greater your chance for favorable returns. What truly matters in investing is not timing the market but time in the market. Get money invested early so your time horizon is long enough to ride out short-term market volatility in pursuit of long-term gains and achieving long term goals.

Pay Yourself First and Automate Your Investments

It is recommended that you pay yourself first and that at least 10% to 15% of your income is saved into your retirement accounts.

Most Americans tend to save wants leftover after paying their monthly bills and spending on discretionary items. Instead, a better way is to spend what is left after first putting a percentage of income into savings. The easiest way to make this happen consistently is by setting up automatic contributions from each paycheck to a retirement savings account. But don’t stop there. It is also recommended that you increase your contributions each year or with each raise.

A small increase in your contributions won’t be very noticeable, but it will make a big difference in your balance over the long term.

• The longer your money is invested, the more compounding you experience.
• Stock market should be viewed as a long game, not a quick turnaround.

Because of these reasons, you should start saving and investing today.

Source: Stay Bullish