Now that we know that many hedge funds inflated or faked their earnings, now that hedge fund managers are disappearing left and right, now that we now these hedge funds were not the greatest thing since sliced bread, now that we know that many hedge funds were nothing more than Ponzi schemes...
perhaps we (and I mean YOU Chuck Schumer) should revisit whether they should only get taxed at the 15% capital gains tax rate on what they earn instead of the 35% ordinary income rate that the rest of us pay.
The lion's share of hedge fund manager compensation is tied to hedge fund profits. That alone is sufficient incentive to inflate profits. But what is even worse that the portion of their compensation based on profits is taxed at the low capital gains tax rate - an even bigger incentive to inflate profits.
It is criminal. It is compensation, it is not capital gain.
Senators Levin and Sanders take this back up. Now is the time.
Further, the IRS needs to issue deficiencies immediately for any hedge fund manager, including Mr. Madoff, who took capital gains treatment on compensation which was based on inflated earnings. After all, the rationale for the capital gains treatment was that it represented gain/profit not income. Well now, if the profit was fake that's no longer true and they should not be entitled to capital gain tax rates. It was ordinary income pure and simple. The other argument is that it is earnings from theft which coincidentally is also taxed as ordinary income.
Al Capone these guys.