lawmaker. “Even if you change the legislation the government won’t get a single penny more from me in taxes. I’ll put my money into my foundation and spend it on good causes. My money isn’t going to be wasted in your deficit sinkhole.”
Indeed, within the private equity fraternity, which would be hardest hit by a change in the tax treatment of carried interest, this is very much the majority view. When I met him in his boathouse on Martha’s Vineyard, the cofounder of a private equity firm warned that raising the taxes on his industry would “kill” investment in this country and drive the money overseas. He also said it was morally unjust because private equity professionals like himself put their own money at risk and so did not deserve to have their profits taxed like regular income. Finally, he argued that raising the tax would actually be fine for him—he was near retirement and had already made his billion—but would be “unfair” to his junior partners. They earned $500,000 or so a year and accepted such moderate compensation only in the hope of huge, and lightly taxed, payouts after a decade or two of work. This white-haired grandfather had voted for Obama in 2008, though he was backing Jon Huntsman in 2011. Like so many of his peers, he came from a humble background—his father was a Pennsylvania steelworker.
The fight over carried interest is fascinating because it offers such clear insight into the power of self- interest to shape ideology. On a human level it is hard not to have at least a little sympathy for the fierce defenders of the current system—after all, a 20 percentage point tax hike is hard to stomach no matter how rich you are—but intellectually their position is close to indefensible. One piece of evidence came in a November 2011 speech Mike Bloomberg delivered in Washington. Bloomberg is, of course, himself both a plutocrat and one of the country’s most prominent financial entrepreneurs. As New York’s mayor, he has defended Wall Street with the hometown zeal of a Detroit politician supporting the carmakers or a prairie leader backing farmers.
Nonetheless, here was Bloomberg on carried interest: “Since fair is fair, tax loopholes in the financial industry that are outdated should be closed, too, such as taxing carried interest at ordinary income rates. And I say this even though many of the people who would be affected are my constituents—so I assume I will get some phone calls later this afternoon.”
GALT’S GULCH
Carried interest is a very specific issue that touches a very specific group of people. The rise of Occupy Wall Street has brought a broader critique of the 1 percent to the fore, and in doing so has spurred some of the plutocrats to mount a more general self-defense.
On October 11, 2011, Occupy Wall Street protesters marched past the Upper East Side homes of some of New York’s wealthiest residents, including John Paulson, the hedge fund manager who earned billions betting against subprime mortgages. Paulson & Co. issued a statement pointing out: “The top 1 percent of New Yorkers pay over 40 percent of all income taxes, providing huge benefits to everyone in our city and state…. Paulson & Company and its employees have paid hundreds of millions of dollars in New York City and New York State taxes in recent years and have created over 100 high-paying jobs in New York City since its formation.” In response, Occupy Wall Street protesters left a mock tax refund check outside Paulson’s house.
Jamie Dimon, the highest-paid Wall Street CEO, earning $23 million in 2010, is another unapologetic defender of the 1 percent. “Acting like everyone who’s been successful is bad and because you’re rich you’re bad—I don’t understand it,” Dimon said when asked about public hostility toward bankers at an investors’ conference in New York in December 2011. “Sometimes there’s a bad apple, yet we denigrate the whole.”
Peter Schiff, CEO of a Connecticut-based broker-dealer and unsuccessful candidate in the 2010 Republican primary for a Senate seat in that state, took the message straight to Zuccotti Park, walking through the square with a video camera and a handwritten sign that announced: “I am the 1%.”
I heard similar sentiments at a public interview I conducted with GE’s Jeff Immelt that month. During the question-and-answer session a white-haired gentleman sitting almost exactly in the middle of the room rose to speak. He admitted that his comments would be “not a question, it’s almost a statement.” It was one he assumed Immelt had sympathy with, but that “you can’t make given the position you sit in.” He went on to warn: “Our problem frankly is, as long as the president remains antiwealth, antibusiness, antienergy, anti–private aviation, he will never get the business community behind him…. The rhetoric is so poisonous… and the problem and the complication is 40 or 50 percent of the country are on the dole that support him.”
The speaker was Leon Cooperman, a sixty-nine-year-old self-made billionaire. Son of a South Bronx plumber, Cooperman made it to Columbia Business School, then Goldman Sachs, then founded his own hedge fund. A few weeks after he made his statement to Immelt, Cooperman expanded on his views in an open letter to President Barack Obama, which instantly became the talk of Wall Street. In it, Cooperman complained the 1 percent were being unfairly caricatured: “Capitalists are not the scourge that they are too often made out to be”; the wealthy are not “a monolithic, selfish and unfeeling lot who must be subjugated by the force of the state.” Instead, Cooperman urged the president and his supporters to remember that they needed the rich: “As a group, we employ many millions of taxpaying people, pay their salaries, provide them with health care coverage, start new companies, found new industries, create new products, fill store shelves at Christmas, and keep the wheels of commerce and progress (and indeed of government, by generating the income whose taxation funds it) moving.”
Foster Friess, the Wyoming mutual fund investor who shot to national prominence as the backer of the main super PAC supporting Republican primary candidate Rick Santorum, made the same point when I spoke to him in February 2012.
“People don’t realize how wealthy people self-tax,” Friess told me when I asked him whether, given the country’s economic troubles, it was fair to ask the rich to pay a bigger share. “You know, there’s a fellow who was the CEO of Target. In Phoenix, he’s created a museum of music. He put in around $200 million of his own money. I have another friend who gave $400 million to a health facility in Nebraska or South Dakota, or someplace like that. You look at Bill Gates, just gave $750 million, I think, to fight AIDS.”
Friess’s point is that the common good is better served when the wealthy “self-tax” by supporting charities of their own selection, rather than paying taxes to fund government spending.
“I think we should get rid of taxes as much as we can,” Friess told me. “Because you get to decide how you spend your money, rather than the government. I mean, if you have a certain cause, an art museum, or a symphony, and you want to support it, it would be nice if you had the choice to support it. Where we’re headed, you’ll be taxed, your money taken away, and the government will support it.
“It’s a question—do you believe that the government should be taking your money and spending it for you, or do you want to spend it for you?” Friess explained.
As for the idea that an economic age, like our own, that is conducive to creating vast fortunes should also be one in which taxes are high—Friess considers that absurd. “If you look at what Steve Jobs has done for us, what Bill Gates has done for society, the government ought to pay them. Why do they collect money from Gates and Jobs for what they’ve contributed? It’s ridiculous.”
Indeed, Friess is unpersuaded by the entire 99 percent paradigm. In his view, it is the Americans at the bottom of the income distribution who are getting the free ride. “I’m just so amazed at this concept that President Obama says, ‘I’m not gonna let half the American people that pay no taxes bear the unfair burden of the other half, who are not paying their fair share.’ It’s pretty comical, when you think about it,” he told me. “About 46 percent of the American public pay no income taxes.”
Friess believes we all rely on the 1 percent, and should respect them accordingly. “It’s that top 1 percent that probably contributes more to making the world a better place than the 99 percent. I’ve never seen any poor people do what Bill Gates has done. I’ve never seen poor people hire many people,” he told me. “So I think we ought to honor and uplift the 1 percent, the ones who have created value.”
Friess is very conservative, but among the plutocrats, his views about the oppression of the rich are not unusual. In a rare interview with the
“I think [the ultrawealthy] actually have an insufficient influence,” Griffin, who donated more than $1 million to Republican political causes in the 2012 election cycle, told the
