More Federal Spending Means Higher Taxes, Says Leon Cooperman

Taxes are on the way up, post-crisis, regardless of who wins in November, according to hedge fund potentate Leon Cooperman. The reason: a leftward shift in the country, no matter who wins the presidency in November.

The founder of heavyweight hedge fund firm Omega Advisors, which he converted to a family office in 2018, Cooperman said the tax revamp “likely” will change capitalism forever.

“When the government is called upon to protect you on the downside, they have every right to regulate you on the upside,” Cooperman told CNBC. “So capitalism is changed.”

Not a lot of prognosticators have turned to the question of how the added federal debt will be handled in years to come. Congress passed a $2.2 trillion rescue package last month to counter the economic devastation wrought by shutting down the economy in an effort to curb the coronavirus. Much more federal spending is on the way.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

As a result, Cooperman, a staunch Republican, predicted that taxes must rise no matter which party wins the White House. And that will affect some of Wall Street’s favorite goodies. The only difference will be how quickly tax rates go up, he indicated.

“Quickly if Biden wins, slowly if Trump wins, but taxes have to go up,” he said. “So things like carried interest, capital gains taxes, the ability to roll over real estate sales tax-free, all that stuff is going to have to be eliminated. For the good, by the way.”

Previously, in 2017, Cooperman was in favor of President Donald Trump’s tax cuts, which lowered individual rates for wealthier Americans and dropped the corporate tax to 21% from 35%. He indicated these reductions would help the economy.

The tax breaks Cooperman mentioned as in the crosshairs, however, have been around for a while. Capital gains rates, 15% and 20%, are considerably below the levels that well-heeled people are subject to for ordinary income taxes.

Carried interest, the management fee that general partners of private equity and hedge funds charge (typically 2% of assets under management, although some go for less), is only taxed as a capital gain. Commercial real estate owners benefit from a break that allows them to sell a property, and if they put the return into another building, escape taxation.

Billionaire Cooperman (Forbes puts his net worth at $3.2 billion) has previously said that he supported higher tax rates, yet he has his limits. He drew the line at a proposal by Sen. Elizabeth Warren of Massachusetts, during the Democratic presidential primary contest, to institute a “wealth tax.”

Never one to tamp down his rhetoric, Cooperman lambasted the notion, saying it would lead to “unnatural acts, be near impossible to police, and is probably unconstitutional.”

Warren, who quit the race and now supports presumptive Democratic nominee Joe Biden, wanted to impose a 2% levy on household wealth above $50 million and slap on an extra 1% tax on fortunes over $1 billion. In 2011, Cooperman accused then-President Barack Obama of waging “class warfare” for what he saw as disparagement of the wealthy.

Cooperman expressed optimism that sections of the economy could start to reopen in May, although he cautioned that a nationwide recovery would be slow. “If you think of a sporting event or a concert, I can’t imagine they’ll come back until we have a vaccination,” he said.