October 1, 2007
Tax and Hedge Funds
Congress has figured out why over 80% of our nation's hedge funds are located offshore -- tax avoidance. The funds use financial derivatives (swaps) to minimize dividend taxes and use other systems to minimize compensation taxes and unrelated business taxes. Congress has scheduled hearings and will not doubt pass legislation to close today's shelter systems. Behind the shelter is, of course, our basic double tax system (tax corporate earnings and then tax dividends) that should be eliminated, eliminating most of the tax planning devices in place today. With no tax on dividends (and no capital gains tax on the sale of stock), funds would a minimal incentive to locate offshore. Revenue lost could be gained back through the adjustment of remaining personal rates.
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