Dean Baker: Big Government Grover and the Fund Manager Subsidy

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From Truthout:


Big Government Grover and the Fund Manager Subsidy
By Dean Baker
t r u t h o u t | Columnist

Monday 23 July 2007

Political activist Grover Norquist has been one of the right-wing's most forceful voices over the last two decades. Along with Newt Gingrich, he was one of the main architects of the Republican takeover of Congress in 1994. His track record makes him a powerful voice on the right. His name sparks fear in the hearts of many on the left.

One of Norquist's current causes is the protection of the tax subsidy enjoyed by the managers of hedge funds and private equity funds. While people with middle class jobs like teachers and firefighters typically pay a 25 percent tax rate, and higher-paid professionals like doctors and lawyers pay a 35 percent rate, fund managers are taxed at just a 15 percent rate on their earnings.

This special deal is the result of the fund manager tax break that applies a lower tax rate on compensation earned by the people who manage hedge funds and private equity funds than on other wage income. As a result, these fund managers, many of whom earn more than $100 million a year, and some who earn more than $1 billion a year, pay a lower tax rate than a school teacher earning $50,000 a year. It is important to realize this lower tax rate is applied to the money they earn as a manager. The tax code already applies a lower 15 percent tax rate to investment income, including investment income from money that fund managers actually invest in their funds.

Norquist is concerned because many members of Congress now want to tax fund managers like teachers and firefighters, subjecting them to the same tax code. Apparently, being subject to the same tax rates as ordinary workers will make life really tough for these fund managers.

Many people, no doubt, share Norquist's sympathy for the plight of fund managers. The cost of living is soaring for fund managers. A proper vacation home can easily run into the tens of millions of dollars, as can a decent sized home in the Hamptons. The price of yachts and private jets keeps getting higher as do luxury boxes at major sporting events. And an elite private nursery school - a necessity for getting children on the right track in life - can run $40,000 a year. That's almost two hours of work for many fund managers. ......(more)

The complete piece is at: http://www.truthout.org/docs_2006/072307F.shtml