Does it appear to anyone else that Hillary Clinton is getting a bit desperate in attempting to salvage her campaign for the Democratic nomination? Get a load of this:
Sen. Hillary Clinton took a swipe at [investment bankers], suggesting wealthy investment bankers and hedge fund managers on Wall Street aren’t doing real ‘work.’ [. . .]
“We also have to reward work more,” Clinton told a small group of Ohio residents today. “and by that, I mean, I have people in New York working on Wall Street as investment managers, as hedge fund executives. Under the tax code, they can pay a lower percentage of their income in taxes on $50 million dollars, than a teacher, or a nurse, or a truck driver in Parma pays on $50,000. That’s very discouraging to people.” [. . .]
The line about investment fund and hedge fund managers has been introduced into Clinton’s talking points as she campaigns across the economically struggling state of Ohio.
Investment bankers are certainly an easy target, but Clinton’s statement that they don’t do “real work” is either disingenuous or appallingly ignorant. Would Clinton say such a thing about other financial intermediaries such as real estate brokers? Investment bankers working on multi-billion dollar mergers are not all that different from real estate brokers — they are financial intermediaries who get paid a commission for helping to originate and close deals. In short, they are being paid a fee for arranging a transaction between a willing buyer and a willing seller.
And believe me, for anyone who has ever seen investment bankers work a deal, it’s definitely hard work. Finding potential buyers and sellers, persuading them to become involved in a transaction, and making the deal happen amidst the myriad of risks that could undermine it is not a cakewalk. Long hours, the ability to deal with rejection, the uncertainty of the fee until the deal closes, grinding travel and pressurized work conditions are just a few of the hardships that investment bankers endure.
Inasmuch as such work is hard, it’s not for everybody. Thus, with really good investment bankers in short supply, they can command high compensation. And the good ones are well worth it. Where else will a seller or buyer find someone with a comprehensive list of direct contacts among potential parties to a transaction and extensive experience getting difficult deals closed? A principal to a transaction is simply renting those contacts and experience and, although often expensive, the investment banker is worth every penny if he or she can pull a deal together for the principal.
The foregoing is pretty basic stuff, so it’s alarming that a Senator from a state with more investment bankers than any other would engage in demagoguery over them. John Carney over at Dealbreaker sums up the irony quite well:
“Now being the First Lady for eight years and a Senator from a state in which you’ve never lived, that’s real work.”
And lest the Obama crowd get too over-confident with Clinton’s increasingly bizarre statements, get a load of this performance by Austin lawyer, former Austin mayor and current Texas state senator Kirk Watson, who has endorsed Obama:
Tom–cannot help myself but had the same debate with my partners. It is utterly unprincipled for our legislators to allow 2000-4000 hedge fund big income earners to count as capital gains the ordinary income received from their “carried interest” they get as a fee for managing people’s money. That carried interest is no different than a lawyer contingent fee or any other “sweat equity” income received. That alone makes me think a Democrat deserves to win, though I remain uncommitted for now as events unfold. While perhaps a small issue in the grand scheme–it epitomizes what is wrong with DC. Congress tried to eliminate that special interest loophole but for reasons I have never researched it died before the last bill was passed. Just like the earmarks never were curtailed. Until we get people in there willing to work for the public interest we will continue down the path we are on. Perhaps idealistic but the reason this upcoming choice is so hard. So Hillary attacking the lophole does not really bother me at all–just wish she had been equally strident (Obama and McCain too) when that last bill was passed leaving the favored treatment for those otherwise most able to pay the highest marginal rate intact.
Pat, no question that the issue of taxation of hedge funds is a controversial issue. But Clinton’s demagoguery about it doesn’t advance the debate.
The whole point of having a low capital gains tax rate (relative to income tax rates) is to incentivize people to invest in businesses and put their capital at risk. In return for risking your own money by investing in other ventures that need funding, you are rewarded with a lower tax rate on any profits you earn.
Now, many hedge fund managers aren’t risking their own capital because they pool money from their investors and manage it for them. Although they don’t earn anything unless they produce positive returns, they also don’t lose as much, if at all, because they typically have less capital at risk (maybe haven’t even invested in the fund at all). This would seem to be the most logical reason why one would be against the 15% tax rate for hedge fund managers.
Perhaps a fair compromise would be to allow managers to pay 15% on the portion that is their own capital at risk and ordinary income tax rates on fees earned on limited partner’s assets that are paid out to the general partner.
I will leave the issue of whether such a compromise is workable to the policy wonks. But my main point about Clinton remains the same — taking this difficult issue and turning it into an allegation that investment bankers and hedge fund managers don’t do “real work” is demagoguery at its worst that should undermine her legitimacy as a viable presidential candidate.