Letters to the Editor
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
‘Robert Rubin’s Rates’
I’m no great lover of Rubin economics and frankly do not know what his proposals of tax increase for equity fund managers and hedge fund managers who are similarly compensated, other than what was in the editorial [Editorial, “Robert Rubin’s Rates,” June 13, 2007].
As a former tax professional who has spent a lifetime on similar matters, I think I can bring a little clarity to what I believe he proposed.
First off, one must under stand the nature of the business arrangement of the hedge or equity fund.
They vary in percent ownership as well as entity type They are usually partnerships, general or limited, or limited liability companies. The managers of the fund may have an equity interest of 1% and the investors a 99% interest. These percents vary.
Profits are shared in proportions that do not conform to the equity interests. A not uncommon distribution of profits would be 80% above some amount, possibly the S&P increase for the period, to the equity interests and 20% to the manager interests.
It is the taxation to the managers of this disproportionate distribution of income that I believe is at issue.
I don’t believe Robert Rubin nor do I believe that people who put their investments at risk should be taxed at ordinary rates.
The managers are compensated for managing and investment selection. Compensation for services should be taxed at ordinary rates.
Under the system of profit distribution, the partners receive a share of the income, which more often than not is capital gains.
But the managers did not really put up money at risk to receive their share. They receive their share for the services they perform.
To the extent they put their capital at risk, they should get capital gains treatment of their share of profits.
To the extent their share is service related, that should be taxed at ordinary rates.
When the managers reinvest their profits, they should be entitled to capital gains treatment on that portion of the gain related to capital invested.
ISAAC ASSAEL
Former managing partner, director of taxation
Weiser LLP
New York, N.Y.
Please address letters intended for publication to the Editor of The New York Sun. Letters may be sent by e-mail to editor@nysun.com, by facsimile to 212-608-7348, or post to 105 Chambers Street, New York City 10007. Please include a return address and daytime telephone number. Letters may be edited.
