The White House isn’t denying that senior adviser Valerie Jarrett took advantage of a tax loophole that the Obama administration opposes, as first reported by an Illinois watchdog group, only that she opposes it as a policy matter.
“Since the beginning of the administration, Valerie Jarrett has been crystal clear about her position when it comes to closing tax loopholes," White House spokeswoman Jen Friedman told TheBlaze Monday. "Like President Obama, she believes that we need to simplify our tax code and make it fairer by eliminating some of the biggest loopholes, and use the savings to responsibly pay for the investments we need to help middle class families get ahead and grow the economy.”
“This includes closing wasteful tax loopholes—including the carried interest loophole—which let hundreds of billions of dollars escape taxation each year, to ensure that the wealthiest Americans pay their fair share,” Friedman continued.
However, Jarrett’s advocacy for doing away with the “carried interest” tax rule was essentially the point of the Better Government Association’s investigation into the earnings she made from a lucrative 2013 Chicago real estate deal. For Jarrett using the "carried interest" loophole to save about $200,000 on her tax bill from about $1.85 million profit, according to the group's findings.
Better Government Association President Andy Shaw responded in Sunday op-ed in the Chicago Sun-Times to Jarrett defenders, who he said reacted in a “so what” matter to the group’s investigation first published in June.
“So, on one hand she’s arguing against the ‘carried interest’ loophole, as Obama did in a tough TV ad against 2012 Republican rival Mitt Romney,” Shaw wrote Sunday. “On the other hand she’s profiting from the same tax break. That’s the ‘what.’ Disingenuous? Unethical? Conflict of interest? Legitimate questions watchdogs ask every day.”
Shaw was referring to a 2012 attack ad against Romney, which said, "Tax havens, offshore accounts and carried interest, Mitt Romney has used every trick in the book."
The BGA is an investigative journalism group that focuses primarily in Illinois matters, and does not appear to have outward political leanings. The organization, which has won reporting awards from the Associated Press, spent months on the Jarrett investigation.
Shaw noted that Jarrett defenders insisted taking advantage of the loophole was not illegal. His Sun-Times op-ed argues, "Maybe so, but consider that:"
+ Beginning in 2010, Jarrett helped the Obama administration push for the elimination of a tax loophole that benefits wealthy developers and investors.
+ Five years later, the White House effort still hasn’t been successful.
+ Jarrett, however, has been very successful personally, profiting handsomely in 2013 on her `05 real estate investment, then cutting her 2013 tax liability in half by privately taking advantage of the same loophole she was fighting publicly...
So how might Jarrett have handled the situation differently?
+ Recuse herself from the administration’s attempt to eliminate the loophole.
+ Not use it herself.
+ Disclose the details publicly after deciding to benefit from the tax break.
There’s no indication she did any of the above.
Before working in the Obama White House, Jarrett was an executive at the Habitat Company, a Chicago real estate development firm, where she helped develop a 46-story apartment tower called Kingsbury Plaza. The tower was owned under the name Grand Kingsbury LLC.
The managing partner of the development was a Habitat offshoot called Habitat Grand Kingsbury LLC, co-owned by Jarrett and other Habitat executives. The offshoot owned 20 percent of the development. The GE pension fund owned the other 80 percent of the development. Of that 20 percent, Jarrett had a 10.67 percent share, according to the Better Government Association.
The Kingsbury Plaza was sold in 2013, with GE getting $67.2 million. Meanwhile the Habitat partners received $17.4 million, according to the BGA. Cook County, Illinois land records show that Jarrett’s share of the sale proceeds was $1.85 million, according to BGA.
Jarrett disclosed the earnings in her White House financial disclosure form, checking the $1 million to $5 million category on the form for earnings. Habitat President Matthew Fiascone told the BGA that the partners, including Jarrett, received a carried interest in the deal. Earnings of more than $1 million would be tax discount of $200,000, according to the BGA’s calculations based on land a mortgage records.
In response to to the BGA, the White House sent TheBlaze three examples of Jarrett speaking in favor of reforming the tax code to do away with loopholes.
During a speech at a Bloomberg News breakfast during the 2012 Democratic National Convention in Charlotte, she called for closing loopholes. A year earlier, during a Sept. 19, 2011 interview with National Public Radio, she said, “Let's not have all these old loopholes that were created by special interest groups. So, this about fairness. It's about equity. It's about balance.” She made a similar point earlier that month during an MSNBC interview.
The phrase “carried interest” refers to when income from investment is taxed at the capital gains rate of 20 percent, or about half of 39.6 percent of the top income tax rate. Hedge fund and real estate industries are among those that benefit.
In May, Obama also talked about the tax loophole.
“When I, for example, make an argument about closing the carried interest loophole that exists whereby hedge fund managers are paying 15 percent on the fees and income that they collect, I’ve been called Hitler for doing this, or at least this is like Hitler going into Poland,” Obama said. “…I’m not saying that because I dislike hedge fund managers or I think they’re evil. I’m saying that you’re paying a lower rate than a lot of folks who are making $300,000 a year. You pretty much have more than you’ll ever be able to use and your family will ever be able to use. There’s a fairness issue involved here.”