That appears to be the guiding principle of the Washington Post's coverage of the fund manager tax break. Today's article does its best to try and portray the status of the compensation that managers receive for their work as a debatable issue. For example, it tells us that "the highly skilled, hyper-aggressive people who run private-equity firms and hedge funds put some of their own money into the pot, but nowhere near the sums contributed by the other partners, whose profits are taken as capital gains -- that is, returns on their investment of capital." Actually, whether or not they put a penny into the pot is completely irrelevant to the issue at hand. We are asking about the money they get for their work, not the return on their investment. Also, how do we know that fund managers are "highly skilled?" Some manage to lose vast sums for their clients. While many fund managers are undoubtedly very highly skilled, their defining attribute is that they are highly paid. The article also tells us that defenders of the tax break "say managing partners are not employees, but bosses, deserving of the capital gains income that flows through the partnership because they are largely responsible for creating it." It's not clear what difference being a boss makes. CEOs are bosses also, yet their earnings, including bonuses and stock options, are taxed as ordinary income. In short, there really is not much of a case here. The Post is not doing its readers a service by trying to present this issue as a debatable point. They are simply sewing confusion. This is a tax break that lacks any economic rationale, it is not balanced reporting to try to pretend otherwise. btw, it is not appropriate to describe the $6 billion potentially at stake (0.2 percent of annual revenue) as "astonishing."
--Dean Baker
