Financial Times Editorial Comment: Different but not dangerous
Financial Times Editorial Comment: Different but not dangerous
Copyright The Financial Times Limited 2007
Published: June 22 2007 22:00 | Last updated: June 22 2007 22:00
There is an anecdote about Lionel Nathan de Rothschild, a keen gardener and very wealthy banker of the 1930s: “No garden, however small,” he said to the City Horticultural Society, “should contain less than two acres of rough woodland.” It is clearly rather nice to be super-rich and the creation of wealth is good for society. But to avoid a backlash billionaires must show that they earned their money fair and square.
This week the US private equity group Blackstone raised $7.7bn in a public offering that made billionaires of founders Stephen Schwarzman and Peter Peterson. But politicians did not congratulate the executives on their business success. Instead they are considering the abolition of a tax break that helps private equity partners and hedge fund managers. In the UK, where a group of buy-out executives were mauled by a parliamentary committee, the story is similar.
Populist attacks on successful financiers and entrepreneurs are dangerous and wrong. Entrepreneurs take risks, and from them come new products, new jobs and higher standards of living. Financiers allocate capital and, if they do it well, there are huge gains in economic efficiency and wealth. Most businesses fail, but people keep starting them because of the possible rewards: punish those who succeed and businesspeople will either stop trying or escape offshore.
We should allow the rich to be rich, but there is a caveat, which is that the competition to become rich should be fair. Income from different sources should be taxed equally, monopolies should be broken down and, most of all, wealth should be earned. Those who make their money through privilege or inside connections taint the whole system.
Private equity plays fair. It performs an important economic role and its leading lights deserve to be very rich indeed, but on both sides of the Atlantic it does seem that the tax system may be having unintended consequences. Taper relief on capital gains tax, introduced by Britain’s Labour government in 1998, was meant to help entrepreneurs, but also slashed the tax rate for private equity partners. A review of that system makes sense.
There are going to be more and more super-rich: the most recent data in the UK show that the top 1 per cent of UK taxpayers are pulling away from the rest, and the incomes of the top 0.1 per cent are growing even faster than that. In scalable businesses such as finance, where investing $10bn needs little more effort than investing $10m, the most talented can reap a disproportionate share of the total rewards.
Fiddling tax systems against private equity would have unforeseen consequences. A political witch-hunt could also have dangerous effects, not least encouraging the public to believe all business gains are ill-gotten. It is time to think about what financiers do, not just how much they make.
Copyright The Financial Times Limited 2007
Published: June 22 2007 22:00 | Last updated: June 22 2007 22:00
There is an anecdote about Lionel Nathan de Rothschild, a keen gardener and very wealthy banker of the 1930s: “No garden, however small,” he said to the City Horticultural Society, “should contain less than two acres of rough woodland.” It is clearly rather nice to be super-rich and the creation of wealth is good for society. But to avoid a backlash billionaires must show that they earned their money fair and square.
This week the US private equity group Blackstone raised $7.7bn in a public offering that made billionaires of founders Stephen Schwarzman and Peter Peterson. But politicians did not congratulate the executives on their business success. Instead they are considering the abolition of a tax break that helps private equity partners and hedge fund managers. In the UK, where a group of buy-out executives were mauled by a parliamentary committee, the story is similar.
Populist attacks on successful financiers and entrepreneurs are dangerous and wrong. Entrepreneurs take risks, and from them come new products, new jobs and higher standards of living. Financiers allocate capital and, if they do it well, there are huge gains in economic efficiency and wealth. Most businesses fail, but people keep starting them because of the possible rewards: punish those who succeed and businesspeople will either stop trying or escape offshore.
We should allow the rich to be rich, but there is a caveat, which is that the competition to become rich should be fair. Income from different sources should be taxed equally, monopolies should be broken down and, most of all, wealth should be earned. Those who make their money through privilege or inside connections taint the whole system.
Private equity plays fair. It performs an important economic role and its leading lights deserve to be very rich indeed, but on both sides of the Atlantic it does seem that the tax system may be having unintended consequences. Taper relief on capital gains tax, introduced by Britain’s Labour government in 1998, was meant to help entrepreneurs, but also slashed the tax rate for private equity partners. A review of that system makes sense.
There are going to be more and more super-rich: the most recent data in the UK show that the top 1 per cent of UK taxpayers are pulling away from the rest, and the incomes of the top 0.1 per cent are growing even faster than that. In scalable businesses such as finance, where investing $10bn needs little more effort than investing $10m, the most talented can reap a disproportionate share of the total rewards.
Fiddling tax systems against private equity would have unforeseen consequences. A political witch-hunt could also have dangerous effects, not least encouraging the public to believe all business gains are ill-gotten. It is time to think about what financiers do, not just how much they make.
posted by Carlos T Mock @ 10:57 AM
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