Dear Senator:
On behalf of the National Taxpayers Union's 18,000 members in the state of New York, I urge you to reject any proposal to raise taxes on hedge fund managers.
In a mad dash to find ways to close a gaping hole in the state's budget, some in Albany have proposed a $50 million tax on hedge fund managers. Historically, hedge fund managers are paid using a "2-and-20" method, which means they receive a salary worth two percent of the fund's assets and a performance incentive worth up to 20 percent of the fund's earnings. If the fund suffers a loss, the manager gets no performance incentive. The new tax proposal would, for the first time, treat the performance incentives of hedge fund managers who work in New York but live in another state as ordinary income and subject to the state's high income tax rates.
While proponents argue that this proposal will ensure "fairness," treating performance incentives as ordinary income is patently unfair. Performance incentives are tied to and drawn from capital gains; they should therefore be treated as such. Taxing the incentives will discourage investment, which is sorely needed in New York right now. Hedge fund managers not only invest billions, they are also responsible for substantial amounts of charitable giving, to everything from education to the arts. Also, without reciprocal action by other states, New York's tax proposal will result in the double taxation of income, which other states can exploit for their gain and New York's loss. Governor Jodi Rell of Connecticut has already sent a letter to New York's hedge fund managers encouraging them to relocate to her state, where the tax treatment of incentives would supposedly be more consistent. In the midst of this economy, it makes no sense to create an incentive to drive hedge fund managers – and their money – away from New York altogether.
Instead of raising taxes on hard-working professionals, New York needs to cut its spending to a more manageable level and reform its burdensome tax code to spur economic growth. In the past decade, state spending has skyrocketed by $35 billion, outstripping inflation by $21 billion and personal income growth by $17 billion. Additionally, the state has the third-highest tax burden per capita and one of the ten worst business tax climates in the nation. Just two weeks ago, the state imposed an additional $440 million tobacco tax on New Yorkers and the General Assembly approved $1 billion in additional tax hikes. This recession has forced New Yorkers to prioritize their expenses and then cut what they cannot afford. It is only reasonable for their government to do the same in addressing chronic deficits.
Sincerely,
John Stephenson
State Government Affairs Manager