New York Gov. Resurrects Hedge Fund Tax Plan

Jul 14 2010 | 12:40pm ET

He was for it before he was against, and now New York Gov. David Paterson has again proposed a major tax hike on out-of-state hedge fund managers.

Luckily for the hedge fund industry, the New York State Senate rejected Paterson’s “compromise” revenue bill—which would complete the state’s 105-day-late budget—out of hand.

A frustrated governor sought to push his own $900 million revenue plan after lawmakers left Albany two weeks ago without considering the Assembly’s revenue bill. But while Paterson last month backed off of a plan to tax carried interest—performance fee income—as ordinary income rather than capital gains, in effect doubling the taxes out-of-state hedge fund managers who work in New York would pay on such income, he included the measure in his version of the compromise.

His bill also included a provision allowing the state’s public universities to set their own tuition, a measure pushed by Renaissance Technologies founder James Simons.

The hedge fund industry has warned that passing the carried-interest provision would lead to an exodus of hedge funds from New York to nearby Connecticut and New Jersey. Conn. Gov. Jody Rell herself took advantage of the possibility, sending a letter to several large New York hedge funds inviting them to set up shop in the Nutmeg State.

The State Senate, however, has ignored the governor, who is not running for reelection. Senators say they plan to negotiate their own agreement, rather than accept the governor’s plan.


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