Billionaire hedge fund titan Ken Griffin isn’t opposed to all tax increases — but certainly those targeting investors, he told fellow billionaire Paul Tudor Jones at a private event Tuesday.
Doing away with the low rate for long-term capital gains, which many professional investors pay rather than regular income tax, would injure America itself, Griffin said. He and Tudor Jones spoke at the closed-to-press Robin Hood investor event, which every year draws hedge fund elite to talk shop in private and raise money for the famous charity. Someone familiar with the proceedings shared the contents with Institutional Investor.
“But for individual investors, who are a big part of the U.S. equity story, a 39 percent tax rate is going to be quite an impediment to buying stocks... We’re going to see liquidity be lower, multiples be lower, the cost of capital be higher, less job formation,” if investor gains simply counted as income, Griffin predicted. “A multiyear headwind? Absolutely. When taxes are at 39 percent, you’re not going to sell your winners. You’re going to stay in those positions longer than you otherwise would have. That means there’s less capital flowing from those companies to the next new idea. That’s heartbreaking. Part of the reason that the U.S. economy works so damn well is that we move our capital as a nation to the next new idea continuously... It’s the mobility of the capital in our system that makes that happen.”
Should a new U.S. administration make that tax code change, “stock prices will be lower, but not as much lower as you would think, because so much of the equity market is owned by players that aren’t paying taxes — pension funds, sovereign wealth funds, and other institutions.”
That billionaire hedge fund and private equity managers routinely pay a much lower effective tax rate than, say, teachers, reliably bubbles up as a hot political issue from time to time, only to fade away again. Reform advocates call it a “loophole” — a term loathed by the leading alternatives investment industry groups — protected for and by the richest Americans. Defenders, Griffin seemingly among them, argue that taxing economic growth is a backwards way to go about stimulating growth, which benefits all socioeconomic levels.
Griffin himself is taxed at “pretty much the highest federal marginal rate,” according to a 2013 talk he gave at the Economic Club of Chicago. “Almost all the income that we generate is short term in nature.”
Citadel’s founder made clear that he is not a hardliner, and indeed supportive of certain tax hikes to counteract the federal government’s current radical deficit levels.
“I would have the capital gains rate be lower, and corporates pay taxes at the corporate level,” Griffin told Tudor Jones at the private event. Investors would still be paying indirectly, as part owners in the corporations shouldered with a fiscal burden, he pointed out.
But Tudor Jones’ suggestion of further economic stimulus, perhaps another round of unemployment top-ups, made Griffin balk. He would happily pay to get Americans back to work — but not to keep them out of it.
“What’s really sad is the rise of some of these preposterous theories that we have disproven. We’ve seen socialism wreck Eastern Europe,” Griffin said. “We can’t let the American worker’s skills fade away. We want to pull people back into the workforce as fast as we possibly can to protect their future income stream. You and I would both in a heartbeat be in favor of stimulus to do so, I believe.”