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Republicans strongly oppose hedge fund tax

Gov. Dannel P. Malloy and Republicansstrongly oppose a controversial bill calling for a 19 percent tax on hedge funds, saying that the levy could drive wealthy millionaires out of the state and hurt the state’s tax base.

But liberal Democrats touted the idea Tuesday at a public hearing of the tax-writing finance committee. The committee’s vice chairman, Rep. Josh Elliott of Hamden, is among those pushing for the concept that proponents say could raise as much as $535 million as the state tries to close a projected defict of $1.7 billion in the fiscal year that starts on July 1.

While strongly supported by some Democrats, the tax hike is opposed by the 10,000-member Connecticut Business and Industry Association. The proposal will have difficulty, legislators say, in the evenly divided state Senate, which includes some fiscally conservative Democrats who have been cool to tax hikes in the past. Since the Senate is tied at 18-18, one Democrat could essentially block the proposal if all Republicans maintain their opposition.

“I could not believe it when I saw the proposal,” said Bruce McGuire, president of the Connecticut Hedge Fund Association, adding that he had been at a conference in Florida, which is actively recruiting investment companies from Connecticut.

McGuire said the state has the third largest concentration of hedge funds in the world with more than 400 funds that are currently managing $750 billion.

He predicted that some firms “will leave Connecticut for other states” if the new tax is imposed.

The bill would impose “a surcharge on income derived from investment management services” that would cover investors from all income levels, but lawmakers said the big money would be derived from hedge funds.

The proposal is facing a tough battle because New York, New Jersey and Massachusetts would all need to approve similar laws for the Connecticut bill to become law, in order to prevent hedge funds from jumping across the border to avoid the tax.

Hedge fund representatives said that high-profile, Greenwich fund managers Edward Lampert and Paul Tudor Jones have both moved their operations out of Connecticut to Florida for tax reasons. Lampert and Jones are two of the best-known managers in the investment business.

Since Tuesday’s hearing was being reported in the international business press, the Connecticut proposal “is already having a negative effect” before any votes are taken, McGuire said.

Sen. L. Scott Frantz, a Greenwich Republican, said the hedge fund industry is one of the best businesses because it continually generates millions of dollars in taxes with little downside.

“If it wasn’t for your industry, we would be insolvent,” Frantz told the hedge fund representatives. “It doesn’t pollute. It doesn’t take up a lot of space.”

But Mark Krauchik, president of AFSCME Local 1303-025, and others said the tax was needed as a major money-raiser to help balance the state budget.

“My fear is you continually come after the state and municipal workers,” Krauchik told the committee. “It’s basically coming after the middle class again. The middle class is frustrated. … We feel the middle class is being punished, along with the state and municipal workers.”

Rep. Russell A. Morin, a Wethersfield Democrat, was sympathetic to the bill because he supports tax fairness.

“I look at it as an equity thing for those of us who are working stiffs,” Morin, 56, said. “I don’t have the ability, at this stage of my life, to change how my income is taxed. … This bill, or some form of it, may address those issues of equity.”

Lawmakers said hedge fund managers are already paying a maximum state income tax rate of 6.99 percent on their income, and the 19 percent surcharge would be added on top of that.

But Sen. Toni Boucher, a Wilton Republican, said it was a misnomer that the investment managers would be paying the extra taxes because the costs would be passed along to the customers.

“The actual person who will be paying this tax are the seniors or those who are retiring who are rolling over their pension,” Boucher said. “My concern is we’re taxing the public that has to make use of these [investment] services. They have to rely on the experts. It’s really taxing the customers, not the individuals you are focusing on.”

http://www.courant.com/politics/hc-taxes-on-hedge-funds-20170411-story.html