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New Taxes on Private Equity? As is well known, many investment managers pay a smaller percentage of their incomes as taxes than their secretaries do.Because the money the government can collect from us is immense, because the money politicians want to collect from us is infinite, many politicians naturally want to increase our tax rates.Well, to the extent anything politicians do is natural, that is.Right now, the gun is pointed at private equity managers, but that will change.Sooner or later, probably sooner, the gun will target other types of hedge fund managers.
The natural temptation for private equity managers is to try to buy off a few politicians and keep our taxes low.Of course, several private equity managers seem to be trying to do just that right now.
But even from a purely reptilian point of view, Iím not sure this makes much sense.Buying politicians may seem like buying an option.If the price is low enough and the potential win great enough, even an option that is far out of the money can make good sense.
But this analogy works only as long as the people who are selling the option do not have the money or inclination to defend their position.This is not always true even on the CBOE.In the political markets, this is definitely not true.The amount of money private equity managers are not paying in taxes is so large, while the number of hedge fund managers and their employees and friends is so small that there will be nowhere for ďourĒ politicians to hide.Much more important, considering the size of the private equity industry, there will be nowhere for us to hide.Considering what Halliburton did and didnít do in Iraq, do you really think the Democrats will forgive and forget?I donít. I suspect that somewhere on the Democrats to-do list is putting Halliburtonís CEO David J. Lesarís head on a pike. Yes, I know heís moved to Dubai (one of my old haunts, not incidentally) and, no, I donít think that will protect him.There are fates that are far worse than paying taxes.
For a different opinion on the issue, see Holman W. Jenkins, Jr.ís article ďPaid to ListenĒ on page A18 of the September 12, 2007 issue of The Wall Street Journal.By my standards, Mr. Jenkinsís article goes beyond financial analysis into craven bootlicking.
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