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Hedge Fund CEO: Obama Is Right — the Rich Are Not Paying Their Fair Share of Taxes

New York (HedgeCo.Net) – Vinod Gupta, CEO of hedge fund manager Everest LLC, shares his thoughts on U.S. tax rates:

“I agree with President Obama that the rich just aren’t paying their fair share. That is why we have a widening wealth gap. When I sold my business, I paid a tax rate of 15%. I felt guilty because my employees were paying a higher rate on their income than I did.

“Most of the wealthy people pay taxes on their investment income. If they make an investment and hold it even for a year, they only pay 15% taxes on that investment, a ridiculously low rate. Most of us invest money because we stand to make a profit on it. Tax consideration is not a major part of our investment decision.

“Therefore, investment income should be treated as ordinary income and we should pay the same rates on this money as we would our ordinary money. There should be no difference in the tax rate between ordinary income and so-called long-term investment income (one year is hardly long-term anyways). In that case, if the top tax rate is 30%, more income would be generated for the treasury and it would hardly impact our investment decisions. All of the private equity and hedge fund billionaires will pay 30% on their carried income, as well. Right now, they are practically getting away with murder by paying just 15% in taxes.

“I reaffirm my belief that President Obama is right that millionaires are just not paying their fair share of taxes. I don’t believe in a flat tax. I also don’t believe in class warfare by calling it a millionaire’s tax, because after all, they work hard for their money. It’s appropriate not to raise taxes on families earning less than $250,000 a year, but families earning more than this should pay a tax rate of at least 30%, no matter how they earn their money. This allows them to keep two out of every three dollars they earn.”

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2 Responses to Hedge Fund CEO: Obama Is Right — the Rich Are Not Paying Their Fair Share of Taxes

  1. George says:

    Mr. Gupta, please tell me that you do not think that a person making $250,000 a year and living in NYC is a millionaire or billionaire. If you check the online CNN cost of living comparison calculator at http://cgi.money.cnn.com/tools/costofliving/costofliving.html you’ll see that a person living in NYC and making $250,000/year is the same as a person living in Phoenix making $110,000/year. Tax people making over $1 million a year if you want to tax millionaires. Don’t try kill the upper middle class. People making over $250,000 are not millionaires and already carry the bulk of the income tax burden of the country and by including them in the category of millionaires and billionaires you are showing your ignorance.

  2. Agree or disagree, everyone with a yankee spirit should be delighted when a successful hedge fund manager welcomes criticism and speaks against his own class and personal interest.

    I am also a hedge fund manger. I agree with Mr. Gupta’s premise–however I would like to encourage him to develop a more nuanced version of his opinion.

    Firstly, the merit of this idea is obvious, and yet to vocalize this opinion is so unusual that almost nobody is even able to think about it. It is sort of like talking about democracy in the middle ages.

    Secondly, if you demand instantly to eliminate the discount for long-term investing, this would probably have an affect on the economy analogous to rolling over a loaded bus.

    Thirdly, Mr. Gupta neglects to mention that perhaps the most unfair and nonsensical part of the long-term tax rate is that it only applies to stocks, not bonds. Bonds certainly can be misused, as proven during the Milken era. However the Milken era also proved that bonds can promote economic development just as well a stocks. And meanwhile in general, relative to one another, bonds tend more to encourage stability, while stocks tend more to encourage greed and speculation.

    I.e., the supposed justification for the long-term tax discount is that it encourages stable economic development. However if so, the logical instrument to which this tax discount should apply would be corporate bonds, not stocks. In addition, “inflation is invisible taxation.” Not only do poor people miss out on the ability to invest–they also are literally robbed of the value of their income and savings via inflation. This inflation is fueled and necessitated by an economy that emphasizes and depends on stock market investing. In addition to eventually making all earned income relatively worthless, the stock market system requires periodic recessions that cause massive suffering and instability. All of this is totally unnecessary in a civilization that solved all the technical problems of food supply a hundred years ago, and on top of that has multiplied productivity with computers. This situation is insane and people are mindless to accept it. The obvious first step away from this unsustainable global economic system is very simply and very gradually to encourage bonds over stocks.

    Therefore my alternative suggestion is as follows: a +2% increase in the long-term tax rate on stocks, and a -2% discount in the tax rate on US corporate bonds and maybe certain government bonds.

    You can then argue that this involves “no net tax increase.” This also takes a logical and cautious step towards the same goal that Mr. Gupta is suggesting. This also considers the obvious importance of investing to economic development and offers an obvious replacement for the traditional emphasis on stocks.

    Unfortunately, I must also confess that my idea is so obvious and unusual that nobody except a few mavericks will be interested in thinking about it. This has been my experience in casual conversation.

    My only hope is that some economist might someday develop this idea and write a book. Then some small third world country, after suffering from one of the routine economic disasters caused by stock, might just take up the cause. And then when the so-called developed nations inevitably end up in a hole they cannot jump out of, they will have that small nation for an example of the way out.

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