Taxes on Hedge Fund Managers

From the WSJ$: "The campaign to raise taxes on wealthy hedge-fund and private-equity managers got a big boost Friday, with the new endorsement of several leading congressional Democrats."

If the U.S. imposes high taxes on hedge-fund managers it will result in far more managers being non-U.S. citizens. To see this let's assume that the U.S. imposes a much higher tax on the income of hedge-fund managers then Switzerland does.

Hedge-fund managers are paid based on performance. The greater percentage of their fund's profits that a manager receives, the more incentives he has to work hard. Let's say that a hedge fund will pay its manager 2% of the fund's profits. If the fund hires a U.S. manager then, say, his after tax take would be 1% of profits. But if the fund hires a Swiss manager then, say, his after tax take would be 1.5% of profits. All else being equal the Swiss manager would be better motivated. Thus, the Swiss citizen would have a huge advantage in getting the job.