The Carried Interest Loophole

Nicholas Kristof, via Mark Thoma:

This carried interest loophole benefits managers of financial partnerships such as hedge funds, private equity funds, venture capital funds and real estate funds — who are among the highest-paid people in the world. John Paulson, a hedge fund manager in New York City, made $4.9 billion last year, top of the chart for hedge fund managers, according to AR Magazine, which follows hedge funds. That’s equivalent to the average per capita income of 184,000 Americans, according to my back-of-envelope calculations based on Census Bureau figures.
Mr. Paulson declined to comment on this tax break, but here’s how it works. These fund managers are compensated mostly with a performance bonus of 20 percent or more of the profits they make. Under this carried interest loophole, that 20 percent is eligible to be taxed at the long-term capital gains rate (if the fund’s underlying assets are held long enough) of just 15 percent rather than the regular personal income rate of 35 percent.
This tax loophole is also intellectually vacuous. The performance fee is a return on the manager’s labor, not his or her capital, so there’s no reason to give it preferential capital gains treatment.

My understanding is that they don't even have to pay the 15% until they cash out of the fund.  They can borrow money against their "holdings" until they cash out and have to pay the taxes.  This is criminal that average people with jobs have to pay a higher percentage of their income in taxes than people making a billion dollars a year.  How Republicans can defend this as non-negotiable is beyond me.  Screw Grover Norquist and his no-new taxes pledge, we have a country to operate.