1) Carried interest is still a fee. It should not be tax advantaged. It should be taxed like any other fee. This is actually a minor point, the author spends 1 paragraph out of 7 on this.
2) Financial services attracts more capable minds than it should because it can pay better. Taxing it at a higher rate would "level the playing field" encourage "more productive activities".
2a) Raising the tax will not reduce investment because its not taxing the sources of capital more, just the managers of capital more.
2b) Raising the tax will encourage managers to invest more of their own money rather than others' money. This will encourage better performance since they have more skin in the game
3) We need to balance the budget. This is a good source of revenue
I totally agree with point 1 with no qualifications. I don't disagree with point 3 but I'd like to hear a good reason why this is one of the better sources of revenue amongst all others.
I generally agree with point 2a, but don't really agree with point 2b. I agree that having more skin in the game makes you more digiligent and cautious, but the author fails to show that managers don't already have all/most/as much of their money invested in their own fund as they can or the mechanism that causes their risk tolerance to change such that they change their asset allocation.
I have serious issues with point 2. Firstly, carried interest only applies to funds/investments that qualify for long term capital gains treatment. I generally disdain those areas because I think its more fluff than science/business sense, but some areas like VC may require science/technology oriented people who can see the possiblities in the business better than someone who's just an MBA. But if you didn't have smart people deploying capital to these risky technologies because they had a better understanding, then these technologies would never get funded.
More fundamentally however, the author fails to qualify what makes one endeavour more productive than another. Is google productive? They harvest information and profit off of it. Does it make people more productive? Maybe, but I have yet to see a study on the ratio of productive to non-productive searches. In the end, google makes money because they're helping connect buyers and sellers. Is marketing a productive activity?
If someone creates scientific breakthroughs in pharma/chemistry is it still productive if the end use is to make cosmetics or cosmetic treatments for people? Or what if its any technology that creates more free time for people by automating some part of their life. Is it still a productive development if all the people do with their free time is entertain themselves?
Full disclosure : I'm an ex-engineer who last worked at a quantitative hedge fund. I think I'm doing more intersting things and potentially creating "more societal benefit" by arbitraging "mispricings" in the market than I would working in most companies/labs. This is partially because most companies/labs are not doing anything that societally productive, so there's a low bar to cross.
1) Carried interest is still a fee. It should not be tax advantaged. It should be taxed like any other fee. This is actually a minor point, the author spends 1 paragraph out of 7 on this.
2) Financial services attracts more capable minds than it should because it can pay better. Taxing it at a higher rate would "level the playing field" encourage "more productive activities". 2a) Raising the tax will not reduce investment because its not taxing the sources of capital more, just the managers of capital more. 2b) Raising the tax will encourage managers to invest more of their own money rather than others' money. This will encourage better performance since they have more skin in the game
3) We need to balance the budget. This is a good source of revenue
I totally agree with point 1 with no qualifications. I don't disagree with point 3 but I'd like to hear a good reason why this is one of the better sources of revenue amongst all others.
I generally agree with point 2a, but don't really agree with point 2b. I agree that having more skin in the game makes you more digiligent and cautious, but the author fails to show that managers don't already have all/most/as much of their money invested in their own fund as they can or the mechanism that causes their risk tolerance to change such that they change their asset allocation.
I have serious issues with point 2. Firstly, carried interest only applies to funds/investments that qualify for long term capital gains treatment. I generally disdain those areas because I think its more fluff than science/business sense, but some areas like VC may require science/technology oriented people who can see the possiblities in the business better than someone who's just an MBA. But if you didn't have smart people deploying capital to these risky technologies because they had a better understanding, then these technologies would never get funded.
More fundamentally however, the author fails to qualify what makes one endeavour more productive than another. Is google productive? They harvest information and profit off of it. Does it make people more productive? Maybe, but I have yet to see a study on the ratio of productive to non-productive searches. In the end, google makes money because they're helping connect buyers and sellers. Is marketing a productive activity?
If someone creates scientific breakthroughs in pharma/chemistry is it still productive if the end use is to make cosmetics or cosmetic treatments for people? Or what if its any technology that creates more free time for people by automating some part of their life. Is it still a productive development if all the people do with their free time is entertain themselves?
Full disclosure : I'm an ex-engineer who last worked at a quantitative hedge fund. I think I'm doing more intersting things and potentially creating "more societal benefit" by arbitraging "mispricings" in the market than I would working in most companies/labs. This is partially because most companies/labs are not doing anything that societally productive, so there's a low bar to cross.