A common hedge fund and private equity manager compensation arrangement includes two parts, that could be something like this:
*The manager receives a fee of 2% of the value of the fund and presently this is taxed at ordinary rates.
*The manager also receives 20% of the annual profits of the fund and
presently this is taxed at a very attractive capital gain tax rate.
Clearly,
the part that is a tax loophole is that all fund manager compensation
should be taxed at ordinary rates, particularly for the larger hedge
funds. Frankly, it is just crazy, from a fairness standpoint, to allow hedge fund managers a much
lower tax rate than what working stiffs must pay.
My recommendation, which is consistent with what the Obama Administration wants, is to tax all fund
manager compensation for managing hedge and private equity funds at ordinary income tax rates, starting in 2013.
