Bloomberg: Unlike Romney, I pay the highest tax rate

In this photo provided by the New York City Mayor's Office, New York Mayor Michael Bloomberg thanks FDNY personnel in Staten Island, Monday August 29, 2011, for rescuing 61 adults and three babies during Hurricane Irene after the lake in Willowbrook Park overflowed. Bloomberg made an expensive, inconvenient and politically risky call, ordering 370,000 people to leave their homes in low-lying areas. But after the city ended up not seeing the urban nightmare Bloomberg had warned about, the mayor made no apologies. (AP Photo/New York City Mayor's Office, Edward Reed)
Edward Reed

In a case of dueling billionaires, New York City Mayor Michael Bloomberg said Wednesday that unlike Mitt Romney's 15 percent tax rate, he personally paid "the highest personal income tax rate," or 35 percent. The reason for the differential between the two billionaires' tax rates is simple: Most of Bloomberg's income is derived from holdings in his media empire, Bloomberg, LLP, which is taxed as ordinary income at the highest city, state and federal rates. Conversely, a large portion of Romney's income is "carried interest," which is taxed at a capital gain rate of 15 percent.

I know what you're thinking: This can't be legal. But it is because the IRS has carved out a special dispensation for many hedge fund and private equity executives that allows them to pay a lower income tax rate on their income. Mayor Bloomberg probably upset some of those hedge fund pros in Greenwich, CT when he said that the loophole should be closed, noting "If it were up to me, I would end the concept of carried interest." Bloomberg's comments, at a news conference in the Bronx, were reported by the New York Times.

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Billionaire Warren Buffett has also advocated the elimination of the carried interest provision as a way to put a small dent in the national debt and to make the tax code a little more equitable. Thus far, the massive lobbying effort on behalf of the hedge fund industry has been powerful enough to maintain the status quo.

The tax code could probably stand a little tinkering because the oft-repeated notion that the rich are paying more than both middle and lower income families does not hold up to scrutiny. As my CBS MoneyWatch colleague Mark Thoma explained yesterday, "the rich are doing better than ever, tax rates are at historic lows for this group, and their share of taxes has not risen by as much as their share of income." Additionally, when factoring in payroll, state and sales taxes, the lower and middle class tax burden looks a lot worse than that of the high earners.

Billionaire tax burden may seem a little out of this world, but so too is the current state of the U.S. tax code.

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    Jill Schlesinger, CFP®, is the Emmy-nominated, Business Analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and Chief Investment Officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.