i dunno about johnson (0.00 / 0)

but trying to soak hedge funds and holding companies (private eq especially) is a very counterproductive idea for two reasons.

One: Most "investments" fit a profile of "very low downside, moderate upside." A mutual fund, for example, has something like a (-1, 8)% likely range of returns for that year. Incentives and behavior are not going to be significantly affected if taxes on the gains are higher.

Hedge funds are different. Why? Because they do not specialize in that kind of low risk investment. Often, their payoff distribution is closer to (-30, 250)%. However, with a 35 percent income tax, the distribution is effectively (-30, 162.5)%. That is a radically different payoff profile. It would be insanely punitive to sensible risk-taking. and the consequence would be that a lot of large, but sensible risk-taking (which overall will be economically beneficial) would not happen.

This brings me to my second point--a lot of tax policy debates simply do not pay heed to the current state of the financial world. Even though it's getting severely roiled by junk bond/subprime problems right now, capital is still hypermobile. Most hedge funds are already offshore, and the ones that remain are essentially banking on being taxed at a "low" 15 percent rate. If Congress told them that they would be taxed at 35 percent from now on, then guess what? The hedge funds would leave.

Instantly.

That's how mobile capital is. It would take one wire order, and that would be it. And if Congress somehow snuck through a bill that would curtail all those financial flows (yea right), then the HFs would hire lobbyists and drill holes in future legislation until they could move their capital elsewhere.

Finally, a lot of HF managers are actually pretty liberal. (Soros anyone) They are eager to spread their money around for good causes, but they do not appreciate being told to at gunpoint, especially by such a stupid, blundering and corrupt body as the US Congress.

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by: jforshaw @ Mon Aug 06, 2007 at 18:09:20 PM CDT

Except that (0.00 / 0)

What's being talked about isn't raising the 15% capital gains rate to above 15%.  What's being discussed is closing a loophole that allows hedge fund MANAGERS to pay that 15% rate instead of regular income tax on their income.  It's a senseless ridiculous loophole that allows certain very rich people to pay low taxes for no reason.  If they are liberals who want to spread money around instead of being "held at gun point" they shouldn't be stealing from the American people.

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by: Sam L @ Mon Aug 06, 2007 at 18:22:02 PM CDT

[ Parent ]

carried interest (0.00 / 0)

is treated at capital gains--hence its tax rate of 15% instead of 35%.

You can call hedge funds' income as "labor"-derived income or "risk-taking"-derived income. I think it's silly to treat hedge fund income as labor income, because hedge fund-derived income is infinitely more volatile. If you more than double effective tax rates on hedge fund income, the hedge funds will simply move elsewhere, and instead of a 15% tax rate on them, the government will be able to tax 0% of their income, not to mention the income derived from their spending in local areas.

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by: jforshaw @ Tue Aug 07, 2007 at 09:58:28 AM CDT

[ Parent ]

Do we really know if they are liberal? .. (0.00 / 0)

Is Stephen Schwarzmann a liberal?  Or are a lot of hedge fund managers going with the smart money?  Don't think that they are really liberal just because a lot of them are giving money  to Obama.  They want a seat at the table, and at this point, the smart money says a Democrat will win the WH in 2008, so they are making sure they'll get their voice heard.

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by: Calvin Jones and the 13th Apostle @ Mon Aug 06, 2007 at 19:05:22 PM CDT

[ Parent ]

dunno about Schwarzman (0.00 / 0)

Schwarzman comes across much more as a make-everybody-happy, spread-the-money-around, conspicuous-consumptive Wall St. stereotype than most hedge fund managers. Schwarzman was one of the big reasons why I have always been bearish on Blackstone.

Most successful fund managers (Ray Dalio, George Soros, Bruce Kovner) are not high-profile conspicuous consumers. They stay out of the limelight to avoid all the distortions that a high public profile brings to their decision-making.

Soros has been a pretty staunch liberal since at least 2002, if not before. I am sure there's a mix of "buying a seat at the table early, so we don't get screwed as badly as everyone else" along with the principled liberalism.

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by: jforshaw @ Tue Aug 07, 2007 at 10:02:37 AM CDT

[ Parent ]

Jena 6 (0.00 / 0)

This was touched on during the Rebuilding New Orleans discussion on Saturday, and it's good to see it mentioned here though.  I think, however, it may serve as a good example relative to the diversity discussions that have been happening around here.  As far as I can tell, the Jena 6 has been a "serious cause" without much, if any, attention from what are traditionally seen as the top blogs.  It's been driven by African-American activism, both on and offline.  Which is a roundabout way of wondering- without accusing or complaining- what's going on if this isn't a universal cause? This isn't a "why aren't you writing about this Stoller?!" question.  It's a bigger question as to why this sort of thing isn't or hasn't naturally resonated more in the broader blogosphere.

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by: Lucas O'Connor @ Mon Aug 06, 2007 at 18:23:33 PM CDT

no one has asked (0.00 / 0)

If someone gives me a strategy and a reason to post on something progressive, I often do.

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by: Matt Stoller @ Tue Aug 07, 2007 at 09:56:42 AM CDT

[ Parent ]

I realize that (0.00 / 0)

Like I said, my comment is not about suggesting that anyone is neglecting the issue out of apathy or malice.  It was simply noticing that, for whatever reason, it wasn't naturally finding itself on the national blogosphere radar.  Figuring out why is, it would seem, relevant.

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by: Lucas O'Connor @ Tue Aug 07, 2007 at 10:54:11 AM CDT

[ Parent ]

Faux Noise .. (0.00 / 0)

Why does someone like the CBC shoot themselves in the foot by lining up with Faux?  Second, does anyone really know what Robert Johnson's political leanings are?  Has he came out and supported Clinton?  Obama?  Rudy?  Anyone?

P.S.  Stoller .. have you stopped checking your Facebook account?  :)

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by: Calvin Jones and the 13th Apostle @ Mon Aug 06, 2007 at 19:02:32 PM CDT