Wednesday, September 12, 2007
Regular readers know I have a fascination (obsession?) with applying Moneyball principles to legal education (What Law Schools Can Learn from Billy Beane and the Oakland Athletics, 82 Texas L. Rev. 1483 (2004); MoneyLaw Blog). So I was especially interested in Moneyball author Michael Lewis's take on the private equity tax issue on Bloomberg: A Wall Street Trader Learns Some Taxing Lessons:
I've agreed to share some more lessons I've learned from hard experience -- in this case from my recent, highly frustrating, dealings with the U.S. Congress. Over the past few weeks I've wasted a lot of time trying to explain to senators who want to raise taxes on private-equity firms and hedge funds how much damage the government is doing -- not just to the global economy but also to the very idea of economic justice. I'm writing this in hopes of speaking directly to poor people (those whose assets don't meet the Securities and Exchange Commission minimum for hedge-fund investing). Maybe they can pass along my message to their elected representatives in their preferred language. Here goes:
- Democracy is due for an upgrade. ...
- Most people -- even highly educated congressional staffers -- still don't get it: Private-equity deals create jobs. ...
- A lot of people -- even U.S. senators -- seem to have gotten the idea that the behavior of the top guys in private equity and hedge funds is somehow "excessive.'" ...
- The working rich are already way too heavily taxed. The truest arguments are often the ones that are hardest to make ordinary people understand, and this is the truest of them all. Rich people know how to invest extra money. Poor people just squander it on necessities. That's why capitalism works so well: it keeps money out of the hands of people who don't know how to use it and directs it to people who know how to make it grow. This is why it makes no sense for rich people to give away their money. Warren Buffett had the right idea: keep piling up as much as possible until the very end -- and then give it to a guy even richer than you. But to judge from the media response hardly anyone understood what I think Warren was trying to say: ``IF YOU'RE HOPING FOR SOME RICH GUY TO GIVE YOU HIS MONEY, YOU BETTER GET YOUR ASS OFF THE SIDEWALK AND FIGURE OUT HOW TO MAKE EVEN MORE THAN HIM.''
- Darwin was onto something. One way to look at Wall Street is as evolution, speeded up. It's all about the survival of the fittest. Well, the fittest have been identified, and it's important, for the greater good, to help them to survive. For some reason our democracy can't see that. It takes the opposite approach: The minute a guy makes his first hundred million, ordinary people and their elected representatives scheme to weaken him. So what if forcing the top 25 hedge-fund managers to pay Medicare tax would cover the Medicare costs of more than 68,000 old people? Florida could stand to lose a few geezers. America can't afford to weaken even one of its most successful financiers.
Anyway, I'm not even sure it's possible to do it. Some of the private-equity guys have threatened to up and move to Dubai if they're forced to pay Medicare. And maybe they will. But I'll bet a lot of them will do what I plan to do: fight back. Last year I took home $50 million in carried interest, give or take. I paid 15 percent in taxes. I was so upset that I went out this year and made $70 million. You do the math: you take away 7 1/2 I just go make 20 more. Tax us all you want. You'll never catch up.