Analysis: Some investors open to higher tax to trim deficit

Mon Oct 22, 2012 5:53am EDT
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By Steven C. Johnson

NEW YORK (Reuters) - Nobody likes taxes, and much of Wall Street has poured money into Mitt Romney campaign coffers to avoid paying higher ones.

Yet a surprising number of top money managers say they are willing to pay modestly higher rates. They reason that revenue-raising measures are an essential complement to the spending cuts they say are needed to curb the massive U.S. budget deficit.

"It's kind of like taking a distasteful medicine. On the way down, it may not be pleasant," said Ron Florance, who helps manage assets worth $169 billion at Wells Fargo Private Bank. "But in the end, it contributes to longer-term health, and that's what we're looking for at this point."

In recent weeks, Goldman Sachs CEO Lloyd Blankfein and JPMorgan's Jamie Dimon became the latest Wall Street heavyweights to say they would be willing to pay more in exchange for a deal to balance the country's books.

Conventional wisdom in the world of finance and investing says higher taxes, particularly in today's fragile economic climate, would stifle wealth creation, suppress hiring and condemn the economy to an extended stretch of slow growth.

Hedge fund managers like Lee Cooperman and private equity heads such as Stephen Schwarzman have been especially vocal critics of President Barack Obama, accusing him of inciting class warfare. Obama wants to let Bush-era tax cuts on income, capital gains and dividends expire for households earning more than $250,000.

Romney advocates cutting taxes by 20 percent and broadening the tax base by closing loopholes, though he's offered few details. The financial services industry had contributed some $16 million to Romney through October, compared with $4 million for Obama, according to the nonprofit Center for Responsive Politics.

Yet many who manage money for investors with at least $1 million in assets said in recent conversations they do not believe a modest rise in taxes on high-income earners would upend the economy, markets or individual portfolios.   Continued...

Lloyd Blankfein, Chairman and CEO of Goldman Sachs, participates in a group discussion on "Business by Design: Business with Integrity" during the second day of the Clinton Global Initiative 2012 (CGI) in New York on September 24, 2012. REUTERS/Lucas Jackson