Hedge fund tax break is an ongoing joke, or obvious corruption
This so-called tax debate about "carried interest"(a misnomer by the financial press), is about the 15% capital gains tax rate that hedge fund managers pay on their take from unrealized gains in the portfolios that they manage. To the best of my knowledge, all other capital gains that are taxed at the 15% rate are realized gains, meaning based on the price at which they actually choose to sell the securities. The protocol in the hedge fund industry, not completely uniform but representative, is that the fund gets a 2% annual fee and a 20% share of paper gains for a calendar year. That 20% share now gets a 15% capital gains tax rate instead of a normal 35% or so income tax rate. It's a giveaway to a powerful group.
The 20% is a fee for performance, part of the hedge fund manager's compensation for work, and many work hard for long hours. Most, if not all, hedge fund managers have a substantial amount of their own money co-mingled in their funds so they can make the choice to take advantage of a capital gains tax rate when they choose to sell securities, just like all other financial market participants. They should pay regular income tax on their work based earnings(the 20% cut of gains) and like everyone else only take the investment gain 15% when they sell.
The arguments against this are specious focused on specie. Suggestions that investment flows into new ventures and restructurings would slow and hurt the economy make no sense. The investors with the hedge funds could not care less about the hedge fund managers tax liability. They have already accepted that they must pay that 2 and 20 fee to play. Their behavior and desire to invest will not change. Will the managers take their ball and go home. They are working a gold mine, and if the giant nuggets get a little bit harder to find there will be replacements rushing in. There is little that is special about these people except in the context of almost all people being special in some way. They will keep working until their dreams or their dreads are satiated and most that leave will be missed for a nano-second by the world beyond their family and friends.
As a matter of complete and obvious fairness, these management fees should be taxed as income. As a regulatory, accounting, and legal issue they should be as well. How they have skirted common sense and ethical tax accounting for such a long time is worthy of an investigation of the politicians who facilitated this and the contributions that they relied upon.
That this is an issue worthy of debate is an ongoing disappointment, a reason to disenchant any serious young person with our system of fairness. Eat your $400 crab for lunch in Palm Beach you hedgies, and preside over the Kennedy Center, the New York Public Library, New York charter schools, and other charities with your contributions to your own self congratulatory applause and that of the New York Times Style Section. Hey, keep giving, but when you manipulate the system to erode any sense of fairness your integrity is in question.
The 20% is a fee for performance, part of the hedge fund manager's compensation for work, and many work hard for long hours. Most, if not all, hedge fund managers have a substantial amount of their own money co-mingled in their funds so they can make the choice to take advantage of a capital gains tax rate when they choose to sell securities, just like all other financial market participants. They should pay regular income tax on their work based earnings(the 20% cut of gains) and like everyone else only take the investment gain 15% when they sell.
The arguments against this are specious focused on specie. Suggestions that investment flows into new ventures and restructurings would slow and hurt the economy make no sense. The investors with the hedge funds could not care less about the hedge fund managers tax liability. They have already accepted that they must pay that 2 and 20 fee to play. Their behavior and desire to invest will not change. Will the managers take their ball and go home. They are working a gold mine, and if the giant nuggets get a little bit harder to find there will be replacements rushing in. There is little that is special about these people except in the context of almost all people being special in some way. They will keep working until their dreams or their dreads are satiated and most that leave will be missed for a nano-second by the world beyond their family and friends.
As a matter of complete and obvious fairness, these management fees should be taxed as income. As a regulatory, accounting, and legal issue they should be as well. How they have skirted common sense and ethical tax accounting for such a long time is worthy of an investigation of the politicians who facilitated this and the contributions that they relied upon.
That this is an issue worthy of debate is an ongoing disappointment, a reason to disenchant any serious young person with our system of fairness. Eat your $400 crab for lunch in Palm Beach you hedgies, and preside over the Kennedy Center, the New York Public Library, New York charter schools, and other charities with your contributions to your own self congratulatory applause and that of the New York Times Style Section. Hey, keep giving, but when you manipulate the system to erode any sense of fairness your integrity is in question.
posted by John Borden at 10:17 PM
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