Trump carried on interest and hedge funds: “They didn’t build this country.”

Written by: Stephen Hsu

Primary Source:  Information Processing

Say what you want about Trump, he’s one of the only candidates who isn’t beholden to oligarch campaign contributors. Below he goes after the crazy tax break that hedge fund managers enjoy.

Bloomberg: … “I know a lot of bad people in this country that are making a hell of a lot of money and not paying taxes,” Trump said in an interview with Time, in apparent reference to hedge fund and private equity fund managers. “The tax law is totally screwed up.”

“They’re paying nothing and it’s ridiculous,” he added on CBS a few days later. “The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky.” He went on: “They’re energetic, they’re very smart. But a lot of them, it’s like they’re paper pushers. They make a fortune, they pay no tax… The hedge funds guys are getting away with murder.”

Trump was apparently referring to carried interest. Most hedge funds and private equity funds are structured as partnerships where the fund managers serve as general partners and the investors as limited partners. Carried interest represents the fund managers’ share of the income generated by the fund, which is typically 20 percent of the fund’s profits at the end of the year. For most funds, this share of the profits, called an “incentive fee,” makes up most of the fund managers’ income, and, depending on the size and performance of the fund, it can stretch into the hundreds of millions of dollars. It’s largely what pays for 40,000 square foot mansions in Greenwich, Conn., and major league baseball teams and $100 million works of art. Under current tax rules, much of that incentive fee income is taxed at the long-term capital gains rate of 20 percent. If it was taxed as ordinary income, the top rate would be 39.6 percent. For hedge fund managers, the carried interest tax provision is something of a third rail, the one thing that unites them in furious opposition.

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Stephen Hsu
Stephen Hsu is vice president for Research and Graduate Studies at Michigan State University. He also serves as scientific adviser to BGI (formerly Beijing Genomics Institute) and as a member of its Cognitive Genomics Lab. Hsu’s primary work has been in applications of quantum field theory, particularly to problems in quantum chromodynamics, dark energy, black holes, entropy bounds, and particle physics beyond the standard model. He has also made contributions to genomics and bioinformatics, the theory of modern finance, and in encryption and information security. Founder of two Silicon Valley companies—SafeWeb, a pioneer in SSL VPN (Secure Sockets Layer Virtual Private Networks) appliances, which was acquired by Symantec in 2003, and Robot Genius Inc., which developed anti-malware technologies—Hsu has given invited research seminars and colloquia at leading research universities and laboratories around the world.
Stephen Hsu

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