Relations between President-soon-to-be-elect Trump and the hedge fund set have been, well, complicated. It started when The Donald said that hedge fund managers just shift paper around and get lucky for a living, and that they’re “getting away with murder,” by which he means successfully utilizing the tax dodges granted them by the tax code. The Mr. No You Can’t See My Taxes doubled down, promising to bleed them dry to Make America Great Again.
This antipathy was amply reciprocated, as America’s hedge fund managers desperately looked for someone, anyone to help snatch the G.O.P. nomination from the demagogue of destiny. But once that destiny was fulfilled, everyone seemed to get together and agree that billionaires-on-billionaire violence just didn’t make a lot of sense. Some hedge fund people started sayingnice things about President Trump. President Trump reciprocated, putting a bunch of hedge fund people on his economic advisory team and picking one—one he had sued, of course—to run his campaign finances and, eventually, his Treasury Department. Things weren’t perfect: Hedge fund managers not named Robert Mercer weren’t exactly reaching for their checkbooks, and John Paulson and the other hedgies on Team Trump may have been surprised to learn that they weren’t there to advise President Trump but to be advised by him. Still, Trump made the only amends they really care about, which was to take back all of the things he’d said about taxing them into oblivion, and instead offer them a nice, big tax cut.
Unfortunately for those hedge funders on the Trump Train, that promise proved as fleeting as their man’s support for the Iraq war and belief that Barack Obama was born on foreign soil. Tax cuts aren’t for paper pushers. They’re for people who actually build things.
The change will make Trump’s plan much less favorable for private-equity partners, hedge fund managers and others who receive income from partnerships, limited liability companies and S corporations. Such entities don’t pay income taxes themselves, but pass their earnings through to their owners, who are taxed at individual rates.
Trump had previously touted the proposal for a 15 percent tax rate on income from partnerships and limited liability companies as a boon for small business -- but many hedge funds, private equity firms and other large-scale businesses also use pass-through structures. Because the current top individual tax rate is 39.6 percent, some high-earning individuals might have gotten a major tax cut under the plan.