Fairfield County Weekly (8/16/07) Link
One stated reason is fairness and it comes in two flavors: mild and spicy.
Mild fairness states that executives of hedge funds, private equity firms and other partnerships, are only being taxed on the trading profits they generate at the capital gains tax rate of 15 percent while the rest of the population earning equivalent wages would pay 35 percent. Of course, this ignores the fact that trading profits are far closer to being capital gains than ordinary income in that they come with risk, market exposure, etc. But the gut reaction is: If I made a million bucks, I'd pay 35 percent, so why are these guys only paying 15 percent? It's all take-home pay, and should be equalized.
To be consistent, this argument must demand raising the capital gains tax up to 35 percent or lowering the top ordinary income tax rate to 15 percent. Indeed to assure equality, this argument should call for zero tax rates on both capital gains and ordinary income.
Spicy fairness goes much further and is best represented by this quote by Dan Pedrotty, the director of investment for the AFL-CIO, the biggest labor group in the nation: "The top 25 hedge fund managers make $14 billion a year. That's more than you could pay the New York City teachers over three years.'
Basically, hedge fund managers earn too much. They should earn less. Aren't teachers more important? They educate and mold young minds. Hedge fund managers just punt on internet stocks, sip Chardonnay and use hundred-dollar bills as tissues. Aren't construction workers more important? They put up buildings. What about truck drivers? Don't you want your goods delivered on time and on budget? Clearly, they are more important than a handful of guys doing who-knows-what and making profits on other people's money.
There seems to be a difference in people's minds between hedge fund managers and other well-paid professionals, such as athletes or actors. So what if Kevin Garnett will earn another hundred million over the next five years playing on the Boston Celtics? He's Kevin Garnett! He rocks! But if a hedge fund manager earns that much, he must be doing something "secretive and unaccountable." Perhaps all basketball practices should be open to the public so that athletes are fully accountable to the public.
There's a fundamental idea missing in these criticisms. If I agree to pay you a million bucks for something, no one on Earth should be able to initiate the use of force to take some of that money away. Make no mistake: force is what's being discussed here. If the AFL-CIO simply thinks they are overpaid as a matter of personal opinion, that's their privilege. But they don't just want to express an opinion. They don't want to spend their own money trying to convince investors not to pay hedge fund managers so much. They want the government to step in and threaten penalties which could eventually mean jail time or even death for those who just want to live their own lives.
Death? Who said anything about death? It's just a higher tax rate! Chill out, right?
Wrong. When the government gets involved, the shadow of death loiters. Even with the simplest, most innocuous laws, the only thing that gives them any power is the threat of death. Suppose the government forces all hedge funds managers to pay a small fee. What happens to those who disagree? They will have assets confiscated from them. What about those who fight the confiscation? They will be imprisoned. What about those who try to escape? They will be captured. What about those who resist or run away? Ultimately, they will be shot.
It is one thing to think Oprah or Shaq or your favorite hedge fund manager is overpaid. It's quite another to endorse the use of force against them to take away money that others voluntarily gave them.
Fairness isn't even the real reason; it's an excuse. If hedge funds continue to lose money as they have the past few weeks, would fairness dictate they should pay fewer taxes?
Fairness means treating people equally. Make laws that are just. Then it is fair for some to earn more than others. But it is grossly unfair to punish success. That would be an unjust law. It would be unfair. It would be wrong. And it would be exactly what America's been doing for the past twenty years. See where it's gotten us. Isn't it time to do things the right way, the way of life and liberty, what we used to refer to as the American way?