Hedge fund managers can make an absolute obscene amount of money through their trading acumen in which they usually charge their investors a fee for the pleasure of those investors participating in their hedge fund, such as 2% of the value of such an investment, in addition to taking a monstrous share of the overall trading profits of 20%. Whether this is a good deal or not for those investing with hedge fund managers is not terribly relevant, since that decision is freely made by those making such an investment.
The issue then with hedge fund managers has little to do with their activity and everything to do with their taxation. For instance, many, though not all hedge fund managers move frenetically in and out of investments, in which, for the average investor, this would result in short term profits subsequently being taxed at ordinary income tax rates, of which these range from a rate as low as 10% to a high of 39.6%, and with some hedge fund managers making millions upon millions in a given year, you might think, they therefore must pay taxes at the highest possible ordinary income tax rate, but they do not.
The thing about the rich, is that they typically believe that they are truly different from the masses, and so it therefore follows, that anyone actually paying nearly 40% on their income in taxes, is something that only the stupid, the suckers, and the tax ignorant ever do, of which, hedge fund managers do not congregate with any of those, except as perhaps, their servants. Instead, through gimmicks that no regular man in the street is even faintly aware of, they use something called “carried interest” along with reinsurance businesses to dodge taxes, as well as deferred income.
The upshot of all this financial runarounds is that the hedge fund managers that obviously can easily afford to pay their fair share of taxes, off of their clearly stratospheric incomes, instead, do not. The main reason is that because these hedge fund managers are so bright, as well as being completely consumed by making money by just about any means possible, they do not want to and apparently refuse to see taxation as something that they owe to society for that success, so certainly they do not buy into the feeling that they have any sort of obligation to the society that has allowed them the opportunity for such richness, especially in consideration that they have retained the best tax attorneys and lobbyists that money can buy, in which, what they are doing in regards to their respective tax returns is apparently legitimate, with those tax specialists having navigated skillfully the legal labyrinth of America’s tax code.
None of the above, though, makes it right, but when it comes to the net return on investment, the taxes that you do not pay are a vital contributing force to the money that is being made, and with the mindset that is built to see inefficiencies in markets of all sorts, even minute ones, hedge fund managers won’t for even a second, consider that paying taxes as ordinary income is anything other than a massive hole to their game plan or their character.
This then is the very crux of the problem, those without influence, such as your average citizen that receives their wages through their paychecks each week, is pretty much forced to follow the rules and to pay their respective tax rates, whereas, the guys that make more money that most of those folks will ever earn in their lifetime, clearly don’t.