New York Governor Andrew Cuomo’s proposed income tax on hedge fund managers elicited outrage Wednesday from the chief of one of the region’s largest funds.
Cliff Asness, co-founder and chief investment officer of AQR Capital Management, issued a torrent of Tweets decrying the plan as “a 19 percent surcharge on investment businesses” and the governor as a “flat out lying demagogue without even the rhetoric talent of his father.” Cuomo’s late father Mario served three terms as New York governor in the 1980s and ’90s.
Cuomo’s official announcement of the “Fairness Fix” was vague on exactly how and on whom the tax would be levied. Every hedge fund manager working in New York, including those who live elsewhere, would have to pay an additional 17 percent tax, according to his January 18 statement. Under the governor’s proposal, the state would also treat carried interest — the cut of profit that private equity and hedge fund managers keep from their investments — as ordinary income.
Despite campaign promises, the Trump administration retained the lower capital gains rate on carried interest in its tax overhaul of the federal tax code. Cuomo is proposing that states take matters into their own hands.
“While the federal government stacks the deck in favor of the wealthy and corporations at the expense of the middle class, we are taking action to protect hardworking New Yorkers and ensure fairness and equality,” the governor said. He estimated that the favorable rate on carried interest costs New York $100 million annually, and that his tax proposal could raise close to $1.1 billion a year.
The legislation would only go into effect, Cuomo said, if Connecticut, New Jersey, Massachusetts, and Pennsylvania adopted similar programs. Even if that were to happen — a political challenge, to say the least — adding to the already high Northeastern tax burden could push investment firms elsewhere.
[II Deep Dive: Asness in Purgatory]
“When you need all surrounding states to join you in confiscation you’re running a gulag not a state,” Asness tweeted the evening of Cuomo’s announcement. “Luckily this gulag allows parole in Florida. Or maybe Texas. So many choices.”
Asness’ firm is not actively planning to defect from Greenwich, Connecticut for a cheaper gulag, but opposes the plan. “AQR expects to continue our significant presence in CT, but would be very concerned of any tax that imposes a massive surcharge on portions of the investment management industry that receive little to no benefit from carried interest,” the company said in a statement to Institutional Investor.
The hedge fund founder returned to the proposal Wednesday morning. “Reading this is just scary. People like Cuomo today like to bray about truth while lying their gubernatorial balls off,” he wrote in a Twitter post.