You probably have no clue who the man in the picture is. I am sure that he would like to keep it that way. If you saw him in a restaurant, you wouldn’t know who he is. He is just you regular everyday business type who happened to make $4 billion dollars in salary last year. He is a billionaire and your tax rate was higher than his was last year.
Let me be clear before I get accused of false advertising. While the dollar figure that billionaire pay in taxes are higher than ours, the tax rates that many billionaires pay are far less than you or I pay. How do billionaires get around paying taxes at the 35% maximum tax rate?
The answer is by working in the right industries.
The richest hedge fund manager in the world is George Soros. Soros has a net worth of $14 billion dollars. John Paulson, CEO of Paulson & Company is worth$12 billion dollars. Third on the list is Carl Icahn with a net worth of $10.5 billion dollars. All of these men have made a fortune due to their talents in the hedge fund industry.
How lucrative is the hedge fund industry?
The top 25 hedge fund managers took home an average salary of $1 billion dollars last year. Yes, you read that right! That’s $1 billion dollars. That’s $2,739,726 a day. This is further proof that I am working in the wrong field! David Tepper was number 1 in earnings last year generating a $4 billion dollar payday. Soros wasn’t far behind at $3.3 billion dollars. James Simons rounds out the top 3 at just $2.5 billion dollars in compensation last year.
Most Americans are unaware of the fact that hedge fund managers pay 15% in taxes on the bulk of their earnings. Managers typically receive a standard 2 percent advisory fee based on the total value of the fund. This fee is paid at the higher income rate of 35%. They also receive 20 percent of the annual profits. This is where the bulk of their money is made and it is taxed at the 15 percent capital gains tax rate.
Now you see why hedge funds and private equity firms fought so hard against tax rates going up. It’s not a bad gig if you can get it. During bad years, you are guaranteed your 2% fee and doing good years you get 20% of profits added to that. My only gripe is with the tax rate.
The solution is simple. Either drop all of our tax rates to 15% or increase their tax rates to what the rest of us are paying. Now if you will excuse me I have to look online and see if any hedge funds are hiring.
BTW the guy in the picture is David Tepper. He is the fund manager of Appaloosa Management.