Tax hedge fund managers “carried interest” as ordinary income.

Hedge fund managers receive their income in a tax advantaged manner that is unavailable to practically everyone else. Rather than report the income they received from managing investments as ordinary income, subject to regular income tax of 37.5%, they have typically had their “incentive” compensation classified as “carried interest”, which is taxed at the capital gain rate of 20% plus 3.8% on the investment income.

Successful hedge fund managers are already extremely wealthy, there is no reason that they should pay tax their income multimillion dollar income at a rate (23.8%) that’s less than a what a worker earning $103,350 in salary would pay (24%).

It makes no difference that hedge fund managers typically leave the majority of their wealth inside their funds – they should pay tax on their management and incentive fees (including employer and employee contributions to Social Security and Medicare contributions) as they receive them. If those fees are left inside their fund for three years, then the subsequent growth should be taxed as long-term gains just like investors in their funds.

Taxing hedge fund managers like every other American isn’t going to close our budget deficit, but it seems like insanity to award one of the highest paying professions with preferential tax treatment when we are straining under a crushing national debt and budget defecits.