Suppose the hedge fund manager is paid a “performance bonus” equal to 20% of the capital gains. This would be considered taxable income and is subject to normal rates of income tax for “ordinary income.”
In the current system, the identical income to the fund manager is considered to be capital gains and is subject to a much lower tax rate than ordinary income.
The theory behind a lower tax rate for capital gains includes the concept that the stock owner takes the risk of loss and therefore it’s fair to charge a lower tax rate for gains.
However, in the hedge fund case, the fund manager doesn’t own the stock and is not exposed to risk of loss on the underlying asset value.
It’s wrong tax policy to transform a performance bonus into capital gains where there is no risk of loss. Hence, I believe Trump is correct to go after this anomaly.
Your use of the word “anomaly” is very gracious.
i thot the same thing. they use the system to get a tax free bonus. i say all paychecks should be tax free. it’s not income any way you look at unless you are a corrupt government employee, black robes and all. kick them all out burn the place down.
Let me repeat:
However, in the hedge fund case, the fund manager doesn’t own the stock and is not exposed to risk of loss on the underlying asset value.
It’s wrong tax policy to transform a performance bonus into capital gains where there is no risk of loss. Hence, I believe Trump is correct to go after this anomaly.
I agree. Trump is right.
Why should the mere act of re-naming a “performance bonus” as “a carried interest” cut the taxes due on that bonus by more than 50%?
Why should clever (wink-wink) Wall-Streeters be allowed to accelerate the building of their fortunes by using a WORD to evade “ordinary” income taxes?
Yes this is not a new argument its been going on for awhile.
If you start a business you put your own money into it and its a risk that you take. So you deserve to pay less tax on the profits.
The Hedge Fund guys don’t fall into this category IMO. So Trump has a valid argument.
That's a logically consistent view, and if our only goal was raising taxes then we could consider also imposing income tax levies on say, disaster victims given medical care. FEMA teams could include IRS auditors to assess any aid that should be taxed in kind. Likewise maybe taxing families of U.S. military personnel killed in combat and interred at Arlington at enormous expense to the American taxpayer. OK, so 'shock-talk' aside our choice is to whether our goal is tax-no-matter-what or is it simply to maintain order.
wrong tax policy to transform a performance bonus into capital gains where there is no risk of loss.
One operative question is whether there is in fact "no risk". A fund manager who craps out looses his career and spends the rest of his life in court. Another point is the fact that 'carried interest' is more often than not left in the fund and not spent, so all them taxes got to be taken out of other earnings to cover income that never actually 'came in'.