Hedge Fund Watch

HEDGE FUND WATCH....As you may know, hedge fund managers don't like to pay taxes. To facilitate this desire, they've decided that their management fees aren't really management fees. They're capital gains and should be taxed at the capital gains rate of 15% instead of the 35% rate that you and I would have to pay if we earned several million dollars a year.

This is an absurd loophole, and Congress is now dithering about whether to close it. (The fact that they're dithering, instead of competing with each other to express outrage and then closing it immediately on a unanimous vote, is yet another demonstration of the immense stranglehold that the rich have on American politics right now, but that's another story.) However, David Cay Johnston tells us today that even if this loophole gets closed, there's another one waiting in the wings.

It's much too complicated to explain, but the end result is that hedge funds that go public are able to avoid taxation on a huge chunk of the money they raise for their principals. In fact, it's even worse: in the case of the $4.75 billion Blackstone IPO, the principals may actually get a tax refund on $3.7 billion of their bounty. This stuff really is capital gains, but they aren't even willing to pay capital gains rates on it. They want us to pay them.

Ain't that sweet? Don't you wish you didn't have to pay taxes either? It's a grand time to be rich and powerful in America, isn't it?

POSTSCRIPT: By the way, this one is at least slightly personal for me. In the 90s I worked for a software company that went public and then got acquired. I owned stock options in the company and made money when the deal went through. Not $4 billion, but a pleasant little chunk, and I paid capital gains taxes on that money. All of it. I think the guys who make $4 billion ought to be required to do the same.

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