John Paulson Made $5 Billion in 2010

[JMapleton]

One man, a NY hedge fund manager, made $5 billion in 2010.

http://www.bloomberg.com/news/2011-...-5-billion-in-2010-as-hedge-funds-gained.html

As of last year, he was worth $12 billion according to Forbes. This wealth was from betting against the sub prime real estate market a few years ago.

In addition, he reinvests his own money back into his own funds.

 

[conehead433]

Greed is good. I wonder how much he actually paid in taxes. With that kind of money you can buy enough loopholes to avoid paying anything.

 

[JMapleton]

Greed is good. I wonder how much he actually paid in taxes. With that kind of money you can buy enough loopholes to avoid paying anything.

The dude paid his taxes I'm sure, unless you can give me a specific loophole he exploited and give evidence supporting this.

Money is power, yes, but you cannot defy the laws of physics no matter how rich you are.

The IRS in the past has released a list (excluding names) of top taxpayers, with the highest tax payers paying hundreds of millions of dollars in taxes. This was years ago before hedge fund managers made $1+ billion.

 

[JSt0rm]

I just checked and there is no relation to Henry Paulson.

 

[Fern]

Greed is good. I wonder how much he actually paid in taxes. With that kind of money you can buy enough loopholes to avoid paying anything.

About 15% (long term cap gain rate).

He doesn't need to buy any more loopholes. Congress gave him that one.

Makes me angry that law provision still exists (15% rate).

Fern

 

[JSt0rm]

About 15% (long term cap gain rate).

He doesn't need to buy any more loopholes. Congress gave him that one.

Makes me angry that law provision still exists (15% rate).

Fern

Well if he had to pay more taxes then he wouldnt want to make money anymore. We know this to be true because the republicans told us so.

 

[werepossum]

Holy crap! Good for him. However - this needs to be taxed as income, not as capital gains.

 

[IBMer]

it should only be capital gains if it is a smaller percentage that actual income. That way it makes it low taxes for people just investing for extra income, and makes it so people like this guy aren't making 12 billion dollars on an effective tax rate of someone making 40k a year.

 

[JMapleton]

Holy crap! Good for him. However - this needs to be taxed as income, not as capital gains.

Why? It wasn't income.

 

[JMapleton]

it should only be capital gains if it is a smaller percentage that actual income. That way it makes it low taxes for people just investing for extra income, and makes it so people like this guy aren't making 12 billion dollars on an effective tax rate of someone making 40k a year.

What about people who invest wisely and over the years acquire a portfolio that generates dividend income that is greater than their job's income? Should those people be punished?

They should be taxed at the proper rate, which is probably either dividend or capital gains, whichever he is claiming.

People shouldn't be jealous because they're not making any money from that industry.

 

[Fern]

it should only be capital gains if it is a smaller percentage that actual income. That way it makes it low taxes for people just investing for extra income, and makes it so people like this guy aren't making 12 billion dollars on an effective tax rate of someone making 40k a year.

Why? It wasn't income.

Hey guys,

His income earned from managing the hedge fund is nothing like LT cap gains.

He has no money invested, bears no risk of loss as with 'normal' capital investments.

This is special tax law provision for hegde fund managers. Basically it's salary/commission for managing the fund (and should be taxed at normal rates). IIRC, it's called the 'carried interest provision'.

No need to get regular cap gains discussion confused with this.

BTW: JSt0rm, Everything I hear say it's Schumer (D) who has blocking any change to this absurd tax rule.

Fern

 

[matt0611]

I'm considered a "conservative" in this forum and I support lowering the income tax (actually I'd get rid of it all together) but if we're going to have it, wages, capital gains, and dividends should all be taxed at the same rate. As far as I'm concerned, they are all "income".

 

[werepossum]

Why? It wasn't income.

Paulson’s gain includes his portion of the 20 percent performance fee the firm collected on its 2010 gross profit of $8.4 billion, said the person, who asked not to be named because the results weren’t public.

Sure sounds like income to me. Regardless, I'm increasingly with those calling for capital gains to be taxed as any income. I recognize the intention of taxing capital gains at a lower rate - to promote investment and thereby fund corporations and drive the economy. However, it seems to me that increasingly, capital gains come from things like this - transactions where one party gains a sum of money from another party. No wealth is created, no new companies or expansions are funded, just a straightforward bet with one winner and one loser. Why should that be taxed at a lower rate?

Same with gambling earnings, normally taxed at 25%. Why is that different from regular income? What about the John Edwards gambit, incorporating your law firm and paying yourself in dividends which are taxed at a lower rate than another lawyer with exactly the same earnings and expenses but more of a conscience? Unless we can somehow reliably differentiate between actual wealth-producing investments and merely risking money for potential gain via wealth transfers, I say treat it all the same. (And if we can somehow reliably differentiate between actual wealth-producing investments and merely risking money for potential gain via wealth transfers, dare we gift government with the power to make those judgments?)

And let me be the first to publicly suspect that when Obama calls for simplifying the tax code and removing loopholes, he actually means just this - taxing all capital gains as regular income.

 

[JMapleton]

And let me be the first to publicly suspect that when Obama calls for simplifying the tax code and removing loopholes, he actually means just this - taxing all capital gains as regular income.

My biggest beef with that is, what about people who sell businesses they own?

Should they be hit with a massive 35% tax when they sell their business? Considering they're gaining anything when they sell their business, they're just exchanging it for another asset, money.

 

[werepossum]

it should only be capital gains if it is a smaller percentage that actual income. That way it makes it low taxes for people just investing for extra income, and makes it so people like this guy aren't making 12 billion dollars on an effective tax rate of someone making 40k a year.

Putting aside my inherent dislike of anything that makes different rules for different people, I find that notion somewhat attractive. It's easy to understand, simple to implement, and hard for Congress to game, thereby reducing the different rules to merely two: more capital gains (than wage income) and less capital gains. At the same time it automatically ends most of the loopholes (like for fund managers or self-incorporaters) that people with money can abuse. I'd do it for gambling earnings too.

 

[werepossum]

My biggest beef with that is, what about people who sell businesses they own?

Should they be hit with a massive 35% tax when they sell their business? Considering they're gaining anything when they sell their business, they're just exchanging it for another asset, money.

I certainly agree that money from selling businesses (or homes, or property) should be taxed at the lower rate. I just don't agree with these breaks for fund managers, or people betting long or short on stocks, or options traders. Seems to me that these are all activities with which one earns a living, whereas selling a business or home or land is something one does after holding them as investments.

 

[JMapleton]

I certainly agree that money from selling businesses (or homes, or property) should be taxed at the lower rate. I just don't agree with these breaks for fund managers, or people betting long or short on stocks, or options traders. Seems to me that these are all activities with which one earns a living, whereas selling a business or home or land is something one does after holding them as investments.

But the problem is creating a definition that targets situations like these. Technically Mr Paulson is not an employee of the corporation in which he manages his money, he is an owner. As an owner, he is entitled to dividends from profits made. Just like if I owned stock in a company that paid dividends.

No it's not fair, but I can assure you, if the government got involved and tried to make it "right," they're going to end up hurting more people inadvertently, when all they intended to do what make it fair. The government always does that. Look at the credit card rule fiasco. Now all the banks are charging more and more fees and for everything from checking accounts to debit cards.

You cannot trust the government to "regulate" anything. It only causes more harm than good. It's like asking a caveman to repair a pocketwatch, they will break everything in sight and we'll be worse off in the end.

 

[werepossum]

But the problem is creating a definition that targets situations like these. Technically Mr Paulson is not an employee of the corporation in which he manages his money, he is an owner. As an owner, he is entitled to dividends from profits made. Just like if I owned stock in a company that paid dividends.

No it's not fair, but I can assure you, if the government got involved and tried to make it "right," they're going to end up hurting more people inadvertently, when all they intended to do what make it fair. The government always does that. Look at the credit card rule fiasco. Now all the banks are charging more and more fees and for everything from checking accounts to debit cards.

You cannot trust the government to "regulate" anything. It only causes more harm than good. It's like asking a caveman to repair a pocketwatch, they will break everything in sight and we'll be worse off in the end.

But income from dividends isn't inherently better or different from income derived from wages or contracts, so why should it get preferential tax treatment? In Mr. Paulson's case, he risked his own money, but he also received a bonus. Why is his bonus deserving of a lower tax rate than mine?

Look at two lawyers, each with $10 million in earnings after expenses. One lawyer (let's call him John Edwards) incorporates, pays himself in dividends, and pays a 15% tax rate. The second lawyer (let's call him John Public) pays himself wages and bonuses and pays a 37% tax rate for the same activity and earnings. How is this reasonable?

I appreciate your comments about government getting involved and making things worse, but government is by definition inherently involved with tax rates and classifications. Government set the old high capital gains rates, government set the new lower capital gains rates, and government will set the new capital gains rates, all according to politics, to a vision of what is good and what is bad for society if not just for a pure desire to punish or reward certain groups.

As to creating a definition, one simple rule is to tax all income the same. Another is IBMer's idea, that capital gains below wages (or below a specific set level) is taxed less whilst capital gains above that is taxed as income. A third is to tax anything held more than, say, two years at a lower rate while taxing shorter transactions at a higher rate. As tax code issues go, this one doesn't seem that difficult.

 

[Craig234]

Something else we should think about, is that if someone is making $5 billion guessing right about the direction of sub-prime loans, that's $5 billion added to the cost of the housing industry, somewhere, which means it's ultimately paid for by home buyers and/or sellers. An industry like finance should make reasonable profits for adding value, not turn our whole economy into one that serves the benefit of parasites who extract wealth from society.

 

[JMapleton]

Something else we should think about, is that if someone is making $5 billion guessing right about the direction of sub-prime loans, that's $5 billion added to the cost of the housing industry, somewhere, which means it's ultimately paid for by home buyers and/or sellers. An industry like finance should make reasonable profits for adding value, not turn our whole economy into one that serves the benefit of parasites who extract wealth from society.

It's actually paid for by US taxpayers, if you really get down to it, because socialist policies, like the ones I'm sure you advocate, bailed out banks which financed these sub prime loans, which comes at a cost to taxpayers.

Also, what is "reasonable"? Where do you draw the line?

 

[Jhhnn]

It's actually paid for by US taxpayers, if you really get down to it, because socialist policies, like the ones I'm sure you advocate, bailed out banks which financed these sub prime loans, which comes at a cost to taxpayers.

Also, what is "reasonable"? Where do you draw the line?

Socialist, as in being a product of the Bush Admin, right?

Socialists would rightfully have nationalized the bastards, fired the management, wiped out the stockholders, cleaned up the banks' balance sheets, broken them up into smaller entities, sold them back into the market, as was done in Sweden in the early 90's.

The only socialism in the bailouts was socialism for the rich.

 

[silverpig]

AFAIK this isn't $5b in cash. It's $5b in the value of the securities, some of which was cashed out.

 

[bfdd]

But the problem is creating a definition that targets situations like these. Technically Mr Paulson is not an employee of the corporation in which he manages his money, he is an owner. As an owner, he is entitled to dividends from profits made. Just like if I owned stock in a company that paid dividends.

No it's not fair, but I can assure you, if the government got involved and tried to make it "right," they're going to end up hurting more people inadvertently, when all they intended to do what make it fair. The government always does that. Look at the credit card rule fiasco. Now all the banks are charging more and more fees and for everything from checking accounts to debit cards.

You cannot trust the government to "regulate" anything. It only causes more harm than good. It's like asking a caveman to repair a pocketwatch, they will break everything in sight and we'll be worse off in the end.

the definition is very simple, privately held and publicly held. privately held businesses have to go through different means to transfer the business or their shares than a publicly traded company would.

 

[JMapleton]

AFAIK this isn't $5b in cash. It's $5b in the value of the securities, some of which was cashed out.

Well, I would imagine it was paid out in "equity" in the partnership of his funds. Whereas the ownership was diluted to his benefit and he was simply issued more shares in his own partnership, increasing his stake. This is just a guess. I do believe it's how Warren Buffett received payment from his partnerships back in the 1960s. It obviously could be done very differently now.

 

[Zebo]

The rich will keep getting richer faster and poor poorer and in more debt. It's normal left unfettered. Called the Mathew effect. http://cup.columbia.edu/book/978-0-231-14948-8/the-matthew-effect/excerpt

Fern mentions the Hedge fund manager exemption all that is is a subset of the Mathew effect the rich can bribe/buy politicians to call regular income long term capital gains. It's not going anywhere. Neither is CEOs paying themselves $1 at increasing rates and taking real money LTCG.