Cheers to the New York Times, the Financial Times, the Economist, Charlie Rangel, Robert Rubin, Alan Blinder, Paul Krugman, Warren Buffet (I think it is implied here), Bill Gross, Greg Mankiw (extra-credit, given Mankiw’s party identity), Andrew Ross Sorkin and Joe Schocken (of Broadmark Capital) for defending the concept that all income should be taxed as, well, income.
If, as some now suggest, private equity funds will try to offset higher taxes on their principals by raising their already high fees at a time when the market is no longer as favorable to the basic private equity strategy of gearing up, they have every right to try. If Qatar, Abu Dhabi and I would assume the Saudi royal family are willing to pay up, that would at least help the US balance of payments. On the other hand, some pension funds might conclude that they can do better -- after fees -- by shifting out of private equity into other assets (Felix has more).
Some private equity managers may be worth every penny. But some may have just been in the right place at the right time: the last few years have rewarded anyone who borrowed money to buy illiquid assets.I see no reason why those who toil in the trenches of the financial sector – including, say independent researchers with rather variable income – should be taxed at a significantly higher rate than those sitting in corner office. I also hope that US politics doesn’t become a contest between a party that defends tax breaks for parts of the oil and gas industry (populated at least in part by cultural conservatives) and a party that defends tax breaks for a small fraction of the financial sector (populated at least in part by cultural liberals), especially if the equilibrium outcome is both get their tax breaks.