I'm posting excerpts of this article so that I could comment on what is a pet peeve of mine. Have you ever noticed that anytime the rich want a tax break or need help in defending their fortune they appeal to the sense of fair play of the little fellow ? -- "We are just alike and what helps me helps you" -- And the little suckers always fall for it.
Believe me, if we raise taxes on hedge-fund managers we'll get fewer hedge-fund managers. Today, with lots of hedge-fund managers trading all the time and keeping markets efficient, stocks are at record highs around the globe and markets are deeper, more liquid and less volatile. With fewer hedge-fund managers, markets would shrink, become more volatile and more costly, and tumble from their present highs.
This is total nonsense. Are these greedy people going to quit work because they have to pay more taxes ? Their ilk didn't quit back when the top tax rate was 70%. They will not stop now.
Anyway, you could make a good argument that it is their activity that is keeping the market in such a narrow trading zone for the past 4 years. Playing both sides of bet they make more in a market that is not going up or down very much. That way they can win both ways.
The talk now in Washington is to make it so that hedge-fund managers have to treat all their income as ordinary income, rather than capital gains. That's going to more than double their federal tax rate from the capital gains rate of 15% to the ordinary income rate of 35%.
But there's no difference between what you do as an individual investor and what hedge-fund managers do. Why should you get the lower capital gains tax rate, but not them?
The hedge fund (HFs) managers are paid 2% of the value of the fund at the beginning of the year plus 20% of any increase in value of said fund during the taxable year. Most HFs are a minimum of $100 Million with an average of about $500 mil. The manager gets to use almost any tact or strategy he wants to increase the value. Options, straddles, futures, arbitrage etc, etc. It's not unusual in a good year for a HF to gain 30 or 40%.
The managers are taxed regular income for their 2%. But their tax on their 20% is limited to the long term capital gain rates -- the maximum of which is 15%.
So let us say a $500 million fund gained 30% -- the manager would collect $10,000,000 (2% of fund) on which he would pay the top rates of 35%.
His other compensation would be $100,000,000 (20% of profits) on which he would only pay 15% tax. So with an income of $110,000,000 he pays a total of about $18 million. Or about 16% of his total earned income. His secretary pays -- counting payroll taxes -- about 18 to 25% of her median salary.
This even embarrasses Warren Buffett one of the richest men in the world.
You both win sometimes, you both lose sometimes. You may think all the hedge-fund managers are big winners, but that's not true. Only the ones still in business are. For every one of them, there are 20 former hedge-fund managers who are now driving cabs.
Can you imagine a person who made $20 million last year driving a cab this year ? The lies just don't stop because these people think their audience is totally gullible.
And you both, whether you know it or not, are fulfilling an important economic mission. By trading and investing, you both set the prices of the world's securities and make the world's markets efficient and liquid. You make possible the indispensable function of allocating capital to the businesses that need it to innovate and grow.
So why should you and a hedge-fund manager be taxed any differently?
The hedge fund manager is different from the small investor because he does not lose not one dime if his investing goes bad. The fund loses, but the manager gets his 2% no matter how much the fund loses. And he loses not one red cent of his capital. If the small investor loses, he loses his capital.
That is the point of the capital gains tax. To give a person a break for taking a risk. Hedge fund managers take no risk and should get no break on it.
There is estimated to be about 8,500 to 10,000 hedge funds. They aren't regulated and nobody knows for sure. If all the hedge fund managers are cheating the national treasury out of an average of about $20,000,000 in taxes yearly, we the taxpayer need to do something about it. We can't depend on the press to say anything because they and the Congress are as thick as thieves on these tax issues for the rich. Call your Congressman and tell him we are NOT that gullible to allow this treason against the Treasury of our country to continue.
There may even be enough there to pay for Bush's war.
Thank you for your time -- Willie