Column, 713 words

Uncle Sam: Please Tax the Titans

Don't ask me what a hedge fund is — if I knew, I'd manage one.

Donald Kaul

I’ve already told you the story of Mrs. Campbell, my well-meaning high school guidance counselor. In case you missed it, I’ll tell you again.

High school seniors in Detroit, where I grew up, had career counseling before they were turned loose on society. You took “aptitude” tests (“Would you prefer arranging flowers or building a bridge?”) and read boring brochures in the name of finding out what you wanted to be when you grew up. I took the tests and read the brochures. When I went to see Mrs. Campbell for advice, she had my records spread out in front of her.

“I think you can be just about anything you want to be,” she said. That was counselor-speak for: “You don’t have any identifiable talent.”

She reviewed the traditional professions — medicine, law, engineering, dentistry. She started on trades — machinist, carpenter, plumber, mechanic — but they seemed even more problematic.

Finally, she gathered my records into a neat pile, handed them to me and said “I’m sure you’ll think of something.”

That’s how I wound up in journalism.

If only she’d mentioned the job I’ve since realized would have been a perfect fit for me — hedge fund manager.



I say this based on what hedge fund managers get paid.

David Tepper of Appaloosa, The New York Times reports, made $2.2 billion last year. That’s what I said, folks — two billion bucks. $2,200,000,000. Poor Ray Dalio of Bridgewater trailed him by a half billion and cried all the way to his tax shelter.

Pay for the top 25 earners in the hedge fund business amounted to $14.14 billion last year. That may sound just swell, as we used to say back in high school, but it was the lowest level recorded in the past four years.

That’s my kind of racket. If I made that kind of money, I’d hire Mitt Romney to cut my lawn.

Wait, you say. Those guys made all that money because they’re smart. They must know things the rest of us don’t.

Actually, they’re not so smart. Most hedge funds — and don’t ask me what a hedge fund is, for if I knew I’d manage one — didn’t outperform the market last year. That means you could have done better putting your own cash into an index fund.

Returns for Dalio’s fund fell short of market yields, as did those for Steven A. Cohen’s SAC Capital Advisors. Both titans still made out as if they’d outsmarted the markets. Cohen took home $1.4 billion.

What do you call it when you get paid a lot when you’re successful and get richly rewarded when you fail? Capitalism.

I’m OK with that. I say let them make as much money as their greed requires — then tax the hell out of them to get a little back for society.

The 60 percent of us who belong to the middle class are shelling out 22-30 percent of our income to various governments when we pay taxes. I’ll guarantee you that none of these guys pay anything near that.

Take the payroll tax, for example. The bottom 80 percent of earners pay 7.65 percent of their income in FICA taxes. But the hedge fund managers listed above don’t pay standard payroll taxes on any of their income over the first measly $113,000 in income officially designated as wages. And a perk known as the “carried interest” provision ensures that most of their income from doing whatever it is that they do is taxed at the capital gains rate — which is about half the rate applied to the income of other professions.

These are the people our Republicans in Congress are shielding from tax increases while seeking to cut Social Security, Medicare, and Medicaid. And yes, Congress did agree on a new 3.8 percent tax on investment income as part of the Affordable Care Act. But no, it’s not likely to increase the tax burden on gazillionaires.

Is this a great country or what?

Mrs. Campbell, you were my guidance counselor. You shoulda guided me a little better. I coulda been somebody; I coulda been a contender.

I coulda been a hedge fund manager.

OtherWords columnist Donald Kaul lives in Ann Arbor, Michigan.

  • T4D

    Well Donald, I believe all High School Counselors should use this column to screen graduating Seniors. I also believe any and all tests for journalism, if there are or ever were, should be certifiably destroyed. Any person wishing to waste their life on journalism should be condemned to watch CNN for 24 hours straight. That would have cured William Allen White.

    • Hugo S LaVia

      What does CNN have to do with Journalism?

  • Dennis Sibert

    Donald, it could have been worse. I didn’t know what I wanted to be either. I ended up as a guidance counselor.

  • Wayne

    OT: One minor correction regarding the 3.8% tax; as your cited article explains, it is a progressive tax that befalls any TP reporting investment income to the extent his/her AGI is over $250K. Many of the people subject to this tax think that this is end of the world as they know it, so that’s probably a good sign. Over the years you’ve written some great columns on the psychology of tax reform: “Tax reform means less tax for me.” and “There’s one ox everyone wants to gore – the other guy’s.” Those axioms are still true today. I agree that the rates aren’t nearly progressive enough. David Cay Johnston likes to cite the convervatives’ bible (Adam Smith’s “Wealth of Nations”) that argues for progressive taxation. It looks to me like the Bush tax cuts were sold by suckering low wage earners with a few hundred dollars of cuts and making them think they got a good deal, while giving away jillions to the wealthy. I doubt that the poor (never mentioned) and the middle class understand what they traded away.

  • Nailing It

    2 obvious things come to mind – 1. 47 % of Americans PAY NO TAXES AT ALL…..and they are then allowed to vote …..for people that want to tax the actual taxpayers even more…so they can get more “free stuff”….and 2. You had no talent so you became a “Journalist” so you could what …..explain to the 47% why they should get even more free stuff and the evil taxpayers who WORK (sorry for using a four letter word) should give it to them…..As we used to say in High School “That’s good work (sorry again…) if you can get it”.

    • ESGreco

      This is a very tired canard. People who are interested in this fake statistic should see these charts from the Tax Policy Center

      Briefly: It’s not true that 47% of Americans “pay no taxes at all.” It is true that 47% of us pay no federal income taxes, which is not the same thing, because two-thirds of them do pay payroll taxes. The other third is split between non-affluent elderly people and people who live in poverty. A good way to raise the percentage of Americans paying federal income taxes is to do something about poverty and the overly low wages that are increasingly the norm.

      Also, all Americans pay sales taxes. It’s impossible to never pay a tax in this country unless you completely exit the economy in every possible way imaginable.

      • JaylahP

        But Rush-bots aren’t interested in the truth. Or learning anything.

  • Johnny Dollar

    You get what you pay for. In your case it was an education in the Detroit public schools. You can still be a hedge fund manager. There’s nothing stopping you that I know of. Get the required licenses and hang out your shingle listing your qualification as “I graduated from a high school in Detroit.”

    By the way, the major factor involving hedge manager compensation involves the amount of money placed with them to manage. Not saying whether that’s right or wrong since I choose to manage my own money and the entire issue is irrelevant to me. Good luck building up a client base of people wanting you to manage their money.

    I want to be a shortstop for the New York Yankees making over $10 million per year. Unfortunately, I’m in my late fifties and wise enough to realize that dream is simply not going to become reality. Maybe I should set a more obtainable goal like winning the U.S. Open golf tournament. At present, I can’t break a score of 100, but there’s nothing stopping me from assembling a scratch game and trying to qualify for next year’s tournament. Maybe I’ll work on that next week.