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Hedge Fund Managers Win Again

August 4, 2010

After successfully beating back legislation in Congress to raise federal taxes on the earnings of hedge fund managers, hedge funds have also succeeded in preventing New York State from raising their taxes.

The state, facing a whopping $9.2 billion budget deficit and an excruciating four-month delay in getting a budget passed, had proposed to tax the carried interest of hedge fund managers who work in New York, but live outside the state, at ordinary income rates rather than capital gains rates. The approach was similar to the tax extenders legislation in Congress that got stalled in the Senate recently after intense lobbying by hedge funds, private equity firms, venture capital firms and the like.

But hedge funds fought back, threatening to relocate to Connecticut, where many of the hedge fund managers live, according to The New York Times. Connecticut Governor Jodi Rell wooed several of the hedge fund managers at a hush-hush steakhouse dinner in upscale Darien, Conn., on Monday, hoping to coax them into relocating their businesses across the border.

New York State eventually struck the hedge fund provision from its budget, which finally passed the State Senate on Tuesday after months of wrangling between the legislature and New York’s embattled governor, David Paterson.

Paterson is expected to sign the budget. He and New York City Mayor Michael Bloomberg had opposed the hedge fund manager tax anyway, according to The Wall Street Journal.

Chalk up another victory for the hedge funds. It’s a good year to be on Wall Street.

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