I have been following with great "interest" (heh. heh-heh.) the developing legislation to tax so-called carried interest at a higher tax rate. There's a good article on the passage of this bill in the house on Friday.
Let me start by saying that the political swing from the left to the right, which began in 2007, will go on for another 10-15 years. There are many changes we'll see, but there are a couple of changes you can, as my mama used to say, put in the Bible – – (1) higher and higher taxes for everything under the sun as governments stave off death by starvation; (2) an increasingly anti-rich, anti-business, pro-union environment. Bank on it.
One might think that I, as a former small businessman and a hedge fund manager myself now, would be very much against the change in carried interest taxation, but I'm not. For one thing, the whole notion of "carried interest" is a complete obfuscation. The tax is relevant to many industries, including venture capital, real estate, and hedge fund managers, but my main beef is with hedge fund managers.
The idea that the richest of the rich get a special Rich Man's Tax Rate of 15% is plutocracy at its worst. Let us once again consider the utterly ignorant average American. Let's stop him in the street for a moment.
SOH: "Excuse me, sir, may I ask you a couple of questions?"
Man On The Street: "You……you're from Slope of Hope!?! Of course!"
SOH: "Do you know what a hedge fund manager is?"
MOTS: "I guess so. They manage money for rich people."
SOH: "Yes, that's right. Do you know how much the most successful hedge fund managers made last year, during the Great Recession?"
MOTS: "I dunno. Millions, I guess."
SOH: "Oh, lots more. The top five all made way more than a billion dollars for themselves, just in that one year, each. The top guy made $4 billion personally in 2009 alone. Amazing, huh?"
MOTS: "Damn! Yeah, that's incredible!"
SOH: "Of course, these guys have to pay taxes. And you know what? Because of what they do, they have to pay a special tax rate!"
MOTS: "That's good. The country could really use the money. I'm just a regular working guy, and I pay almost 40%. These guys must really have an incredible rate."
SOH: "They sure do! 15%"
MOTS: "{multiple expletives redacted}"
I do believe that those, for instance, in the world of venture capital are entitled to special capital gains treatment, but it sounds like the very broad brush of higher taxation is going to paint both deserving and undeserving alike.
But all the bleating I'm hearing from the world of private investment about how this will kill jobs is complete rubbish. People who run hedge funds don't create jobs, except for a handful of administrative positions. They run money. Period. They're professional gamblers, and those that are good at it are richly rewarded. There's no reason under the sun that the income they draw from their efforts should be taxed any more beneficially than the income other people draw from their efforts. It's the same damned thing.
Let's hope the Senate doesn't succumb to the pressures of the treacly lobbyists from private equity-land and water things down any more than they are already. Hedge fund managers avoided billions upon billions of dollars of taxes they should have paid during the past decade. If there were any justice, they actually would have a special 70% tax for the next ten years, but let's at least pretend to be a little fair and have them join the rest of the working world. God knows Big Jim Simons can spare the cash.
