Grover Norquist Is On The Wrong Side Of History

A month ago, Paul Blair of Grover Norquist’s Americans for Tax Reform and Derek Monson of the conservative Sutherland Institute responded to an article I wrote in the Salt Lake Tribune about “carried interest,” a discredited preferential tax treatment that rakes in billions of dollars for private equity and hedge fund managers.

Carried interest is a fee for managing other people’s money. Fund managers earn this fee for their labor, just as plumbers, doctors or teachers; except, unlike everyone else, fund managers pay a lower capital gains tax rate.

I originally argued that if Republicans truly believed in deficit reduction, they would eliminate this useless loophole and use the revenue to reduce the deficit. Specifically, I called on Sen. Orrin Hatch, senior United States Senator for Utah and Chairman of the Senate Finance Committee, to lead the charge.

Responding to my criticism, Blair and Monson falsely accused me of promoting “bad tax policy” which would “reduce the federal deficit on the backs of retirees while undermining prosperity by destroying good jobs.”

Clearly, what I wrote scared them. It scared them because I am someone who is speaking from personal experience and knows finance and investing inside and out. I have worked over 40 years both on Wall Street and managing investment partnerships in the most competitive environments. This is unlike my critics, who have no firsthand knowledge and are just parroting failed, incorrect theories promoted by conservative elites.

I am a member of the Patriotic Millionaires, a bi-partisan group of successful people who would dispel the myths that Americans for Tax Reform and others use to concentrate even more wealth in the hands of economic elites. I am speaking from fairness, not my personal financial interests. In fact, if the carried interest loophole were disallowed, my tax bill would rise.

Apparently, Blair and Monson put Wall Street fund managers first. Just consider…

The authors write about the importance of deficit reduction. But Republicans have zero credibility on spending restraint. George Bush inherited a balanced budget, and what did he do? He cut taxes for the wealthiest, and the deficit ballooned.

Similarly, in January when the Republicans gained control of Congress, they passed a massive package of tax cuts, creating the first budget deficit increase in six years. Where is the budgetary restraint that Blair, Monson and other conservatives claim to hold so dear?

Blair and Monson say that higher taxes would reduce investments, but the world is currently awash in excess capital. American corporations have record profits but they are choosing to allocate their cash into repurchasing stock rather than new investments. Record low interest rates worldwide also show that the supply of capital far exceeds demand.

In other words, fund managers don’t see many attractive opportunities. What are needed are strong consumers to create more good investment opportunities, not pointless tax breaks to sugarcoat the plentiful supply of capital that already exists.  Consumers today are strapped do to 30 years of rising income inequality and off shoring of jobs, but that is a topic for another day.

And the far-fetched claim that eliminating carried interest would reduce Utahns’ retirement income because fund managers would charge higher fees is nonsense. There isn’t any set fee for these investments. The fees include many complex parts that are driven by competitive pressures. Just because fund managers might pay higher taxes does not mean that fees would change, just as ordinary businessmen don’t raise or lower prices in response to a change in tax rates.

Nor would higher taxes mean that the financial sector would lose talent. When I worked for Goldman Sachs and Lehman Brothers, I routinely met incredibly talented and successful people. I never remember a single one of them quitting their job because of high taxes… and during this period federal tax rates were 70 percent or higher, far in excess of today’s maximum rate of 39.6 percent.

At the highest levels, people are successful because they have an unstoppable drive to succeed and because they want to be the best at what they do, not because they are the greediest. So let’s dispense with the flimsy allegation that fund managers would stop working if the carried interest loophole were eliminated.

The truth is that the carried interest loophole represents a kind of destructive greed, a cancer that has crept its way into the core of our country’s economic system.

So Senator Hatch, do your job, do what you campaigned on, reduce the deficit by eliminating the loophole. It’s the bi-partisan thing to do. The vast majority of primary voters are supporting presidential candidates who would eliminate carried interest. Don’t be on the wrong side of history.


Art Lipson is the principal of Western Investment LLC based in Salt Lake City and a member of the Patriotic Millionaires.

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