Little Data

The Managed Funds Association, which represents hedge funds, declined to comment.

There aren’t reliable data on tax rates paid by hedge-fund managers, private-equity managers and real-estate investors. And the distinctions among types of fund managers can be somewhat fluid.

But many hedge funds don’t get the benefit of the long-term capital gains rates.

“Hedge-fund managers, relatively speaking, pay a good deal of tax, because it tends to be short-term capital gain,” said David Miller, a tax lawyer at Cadwalader, Wickersham and Taft in New York who specializes in the taxation of private equity and hedge funds.

If top hedge-fund managers benefited so much from carried interest, the official revenue estimate from congressional scorekeepers would probably be much bigger. The Joint Committee on Taxation, which has access to tax returns for its estimates, recently pegged the potential revenue gain from a bill that would end the benefit at $15.6 billion over 10 years.

‘Big Number’

“That’s a big number, but in the scope of things, not that big a number,” Miller said.

What’s more, if carried interest worked so well for hedge funds they probably wouldn’t be employing so many other crafty maneuvers to avoid taxes at short-term capital gains rates.

Renaissance Technologies, for instance, came under congressional scrutiny last year for its past use of basket options, which enabled the firm to say that it was realizing long-term gains even though it was making short-term trades.

Other hedge funds, including those run by John Paulson and David Einhorn, have been creating reinsurance companies in Bermuda, in part so their investments can generate long-term capital gains when sold. Representatives for both declined to comment.

James Simons, the founder of Renaissance and a major Democratic donor, told a House panel in 2008 that he wouldn’t care if the carried interest break went away.

“The carried interest portion represented by other people’s money -- if that were raised to higher levels, that would be OK with me,” he said.

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