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Top 25 Hedge Fund Managers Make Almost $1 Billion Each – And Pay Less Taxes Than You Do

Top 25 Hedge Fund Managers Make Almost $1 Billion Each – And Pay Less Taxes Than You Do

For many of us, we’ve been lucky if we’ve held on to jobs, or even got a cost of living salary increase during the recession that has been plaguing the country for the last decade.  But for one highly specific job in the banking industry, the hedge fund manager, not only have paydays been increasing, it’s now five times as big as it was just ten years ago.

Via the New York Times:

Ten years ago, when the hedge fund industry was much smaller than it is today, it took 25 hedge fund managers to earn a combined annual payday of $5 billion.

Last year, it took only one.

Last year was very lucrative for some of the biggest and best-performing hedge funds’ chiefs. Wealth was so concentrated that a mere 25 people pocketed a total of $22.07 billion, according to this year’s annual ranking by AR Magazine, which tracks the hedge fund industry. At $50,000 a year, it would take the salaries of 441,400 Americans to match that sum.

But just because these executive are cashing big checks doesn’t mean that they have big tax bills.  Sure, they are likely giving Uncle Sam more money than you are, but as a percentage of their income they pay nowhere near close to what you pay.  Wonkroom writes:

[H]edge fund managers benefit from preferential tax treatment that middle-income Americans don’t. Due to what’s known as the carried-interest loophole, the income that hedge fund managers receive if their funds make money is treated as capital gains — rather than ordinary income — and gets taxed at the capital gains rate of 15 percent. Even though the pay is performance-based compensation (just like any other performance-based bonus made by any other worker), hedge fund managers receive a tax break on that income. This results in hedge fund managers paying less in taxes on this income than middle-class workers, who are subject to a 25 percent top marginal tax rate.

So a hedge fund manager that is making $1 billion a year is probably only bringing home $850,000,000.  That makes you feel better, right?

When the Republicans say that rich people need to have their money because they pay most of the taxes, remember that this is what they are talking about — someone who makes one billion dollars only gets to keep $850,000,000 of it, and the GOP thinks that they should be able to keep many millions more.  Whereas someone who makes $50,000 should be forced to lose collective bargaining rights to ask for a 2 percent raise for the following year.


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8:14AM PDT on Apr 29, 2012

Thank you to Eric for sending this. Not exactly shocking information but we need to make sure we keep putting it out there . Change needs to happen and it won't happen by being complacent !

9:22PM PDT on Apr 28, 2012

Their salaries are so incredibly disproportionate to the good they do society. I see no reason not to tax the super-rich at much higher rates than we currently do.

8:09PM PDT on Jun 13, 2011

So tell me something I didn't know!! Goes with the territory. The rich get richer off the backs of everyone else.

3:29AM PDT on Apr 13, 2011

Duncan: Another tax bracket on top of the existing ones is hardly "punishing" the high earners. The tax would only apply to that portion of their earnings that is above the threshold and it only needs to be a small percentage added. It isn't a disincentive to obtain higher returns on their hedge funds or to sell more of them because they would still earn more if they do so; it's not as if the tax would claw back all of their increased income, far from it.

I have a friend who is a bit older than I am who remembers a time in the late 1950's and early 1960's (when I was a bit young to be aware of such things) when there was, in fact, a higher tax rate on high income earners in the USA than there is today (in relative terms, of course, adjusted for inflation). Those were prosperous times for the most part, so looking back it doesn't appear that a higher tax rate was creating adverse effects on the economy.

3:20AM PDT on Apr 13, 2011

Duncan: Yes, they only lose IF they sell - but then you added "Why would I sell?". My answer was in response to this. Sometimes this is not a CHOICE! If they can't keep up the mortgage payments because the company they used to work for went belly up or they or their spouse face unexpected medical costs not covered by insurance, then they have to either sell or face foreclosure. If the value of the house has dropped below the value of the mortgage and they've drained their financial resources because of unemployment, illness, whatever, then maybe they do just walk away and let the mortgage lenders take it. It's happened.

4:02AM PDT on Apr 10, 2011

And Duncan, on the issue of a house losing its value: If someone is paying on a mortgage, and the house loses value from what they originally paid, the amount still owed on the mortgage can be greater than the value of the house. Then if someone loses their job or has to take a deep pay cut or has a health crisis and ends up in financial difficulties because of that - so that they can no longer afford the mortgage payments, and have to sell - they can't sell the house for enough money to pay off the mortgage.

3:58AM PDT on Apr 10, 2011

Duncan: Just because someone - hedge fund manager in this case - is paid by one of the two methods you described - either a fee (wages) or on a percentage of increase in funds capital (capital gain) - doesn't preclude them getting a bonus. Not a performance bonus, if the hedge fund isn't doing well, but a retention bonus - because the company they worked for was worried that they would leave either because they were facing a few bleak years ahead or because they were worried about liability. Bonus or not, if they are earning a fee taxed as wages, my comment about adding another tax bracket for high income earners still stands. If the second option (capital gains) then it would have to be addressed through the tax structure for capital gains.

6:04PM PDT on Apr 9, 2011

It is not new but "in-balance" make people to discuss. why US's Tax code was complicated in today? how long ago it became not reasonable? What did cause American changed? - Campaign eleection funding is not transparent.

2:25PM PDT on Apr 8, 2011

I hit the wrong button regarding taxes. Of course these greedy individuals should step up to the plate and do the right thing. But they won't. I know because I worked in the securities industry my entire career, and you wouldn't believe what I witnessed as a compliance officer.

2:14PM PDT on Apr 8, 2011

"Duncan, yes people manage to survive on those lower paying jobs but fewer and fewer of them. And one misfortunate event moves more and more people into poverty.

One illness. One fire. One Enron, Madoff or other scam. One collapsing housing market..."

You make it sound like there is no chance to advance. Then blame those that manage to do so! One could make the case that the failure of certain persons to "advance" can be assigned to the abysmal high school graduation rates.

Of the things you think can crash someones world, you have two disasters, two scams, & one don't matter.
It don't matter what the value of your home is while you live in it, save those people that were foolish enough to buy a floating rate mortgage. If I bought a house for $100k and it is said to be worth $66k, what have I lost? Nothing unless I SELL! But since it is my home why would I sell?

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