My bro brought up a question regarding Obama's economic plan which includes increasing the marginal tax rate on capital gains. "No!" shriek the usual suspects. "The wealthy will lose all motivation to invest or make money!"
Here's the simple answer:
The average hedge fund manager made $363,000,000 in 2005.
The average American household made $48,201 in 2005.
The hedge fund manager pays a "capital gains" rate of 15%.
The average American household pays a "marginal tax" of 31%.
Republicans argue that taxing the hedge fund manager like the average taxpayer would make them work less hard.
Here's the (conservative) National Review's take on it:
"Investment capital is the lifeblood of business expansion and job creation, and the idea that Congress can’t find offsets in the bloated federal budget and must raid Wall Street for more money is preposterous. I know — no one deserves to have their taxes raised quite like these extremely well-compensated benefactors of the party that seeks to destroy them. However, as usual, it’s up to conservatives to know better."
I'm serious. This is actual doctrine and policy of the Republican party. When the sheeple figure this out, do you suppose we'll be trading recipes for "Hedge Fund Manager Au Gratin"?
14 comments:
i think the "average" you quote must be the average among the top 25, but the point remains true. jk
Right you are jk. It's for the top 25. In 2006, the same group averaged $510,000,000, so the point does indeed remain true.
Nice catch.
I would be curious to know the actual average income -- really I'd prefer the median income -- of hedge fund managers. I think quite a lot of them just sort of crap out. Generating alpha isn't just a matter of picking some dumb trade and leveraging to the max. (Making it up on 'volume' a la Milo Minderbinder) But data would be interesting.
As to your request for comments, I find the best climate around for interactivity is to be found at Brad Setser's blog. He engages his commenters and this encourages some intelligent participation. Naturally, he has to do some moderation as well, but he manages to do it in a way which keeps people coming back to the well to chat.
But my question was: does taxing the rich really make them stop trying to make money?
STS
Thanks for the input. Who is Brad and where is his blog?
I've gone back and forth on interacting, and will go back to doing it actively.
I'm still looking for the HFM median income. BTW, who are you?
Steve
That's my whole point. Of course their behavior doesn't change.
I just wanted to make sure you meant "hell no!"
Setser is at RGE Monitor (but may be moving elsewhere soon):
http://www.rgemonitor.com/blog/setser
His blog is pretty serious international economics, but the style is instructive. Depends what you want to create, of course.
What sort of identifying information would make what I write more intelligible?
STS
It is of no importance. Your input has been thoughtful, useful and civilized. It's just that I think I know who most of the other players are.
On the Hedge Fund Managers pay issue, it's not like there are fledging Hedge Fund Managers out there operating on a shoeshine and a smile, who won't make a penny till their clients thrive.
Hedge funds operate on the 2/20 model of compensation and I've never heard of a hedge fund running less than $300 million. Because the annually get 2% of invested cash profits, they are inpretty good shape from the gitgo.
A basic $300 million hedge fund would generate fees of $6 million per annum before they make any money at all for clients.
I have a respectable few million with a top 10 wealth management group that runs a fund just north of $400 million, and they do just fine with 6 employees at 1% on money invested, plus trading in their own accounts. Any one on a 2/20 who isn't scarfing at the trough is incompetent at best.
You're quite right that the 2/20 deal isn't leaving anyone shivering in the cold. I just suspect the 9 figures 'average' exaggerates the real story. I wonder if a realistic median income would be wildly different from what major league baseball players are paid, for example. And how long a run at those rates of compensation does a typical HFM have?
I don't want to be an apologist for hedgies, still less the 'carried interest' tax treatment. But there are other "stars" in our economy who get fabulous amounts for doing things that aren't dramatically more "productive" in some old-fashioned sense. I'm trying to gauge their value in some kind of context.
Then there is the question of value received: would you leave your current wealth management group if they started charging more? When do the customers start refusing to pay the rich fees?
By way of identification, let me add that I'm *not* a member of your current wealth management group! (Nor anyone else you know in another context.)
seems more like an argument to lower (completely get rid of?) the marginal income tax rate than raising the capital gains.
when the sheeple figure that out then we will have true prosperity
We have a $9 trillion deficit. Two thirds of it has piled up since the Bush tax cuts were supposed to increase tax revenues, ala Laffer curve and all right wing ideological doctrine.
How high do you let it get before the grown ups take over and raise taxes to pay it off?
This has been a completely right wing economy, spending, tax and borrowing seven years. When do we admit it didn't work?
I heard a sound bite by Bush, saying that he wanted the congress to hurry this latest tax "refund" to get into the hands of the "consumers". I am sure it was an off the cuff and not scripted freudian slip showing he is not interested in the "American: "Taxpayers", "Middle Class", "People" or any other moniker but the one that he used...consumers to spend that money to keep fueling the failed policy.
Well, let's see. I buy your inflated stock, and you get a sweet 15% tax rate. This is supposed to cause economic growth because you got to keep more money, which you will use to buy stock held by some other guy, who will pay the same rate.
So when does this capital get invested in anything productive, that employs anyone (excepting Wall Street transaction cost providers)?
Or thought another way: an investor can get a pre-tax return of 10% buying an investment or investing directly with a company. Or he could by a bond that pays 4%, or a 3% bank CD. If he was taxed at the same rate on all income, why would he forego the equity investment?
I actually wouldn't mind a tax break for capital gains, provided the cash goes directly to the company, which actually could enhance growth. But giving breaks to one speculator that buys stock from another, who sells the same stock to a third speculator makes no economic sense. Political sense maybe, until the wealth disparity gets so huge that the government has to do something about it, just to quell blood in the streets.
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