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Robert Mercer and the Tax-Evading Hedge Fund Giving Millions to Republicans and Democrats

The hedge fund has created special tax breaks for the business.

As part of a secretive anti-Muslim ad campaign launched by Secure America Now, a conservative national security digital platform, hedge fund billionaire Robert Mercer donated $2 million to the social welfare organization. Leading up to the 2016 election, the organization promoted racist mock travel ads in several swing states. Mercer’s donation was revealed by Open Secrets through a 2016 tax return exposing the dark money group’s donors.

Mercer has increasingly gained notoriety as a prolific donor who significantly backed Donald Trump’s presidential campaign through direct donations, and for investing in the data firm Cambridge Analytica. The attention Mercer has received for his political endeavors incited his colleagues to pressure him to resign as CEO of Renaissance Technologies, a multibillion-dollar hedge fund built and owned by two of the biggest Democratic Party donors in recent years, billionaires James Simons and Henry Laufer.

The New York-based hedge fund Renaissance Technologies itself has quietly emerged as one of the most prolific influencers in politics, as the owners have consistently ranked as the top political donors in the past few election cycles. In doing so, the hedge fund has successfully lobbied to create special tax breaks for the business.

Profiting From Special Tax Breaks

Instead of holding the hedge fund accountable for evading taxes, the federal government provided it with a new tax break.

In 2010, after the Internal Revenue Service (IRS) banned the use of basket options as a means of disguising higher-taxed, short-term profits as lower-taxed, long-term profits through a “basket” contract between a hedge fund and banks. The decision to close the loophole meant that firms were required to amend past tax returns and compensate the government for evaded taxes. According to a 2014 bipartisan Senate committee report, Renaissance avoided paying an estimated $6.8 billion in taxes through basket options. Renaissance Technologies’ legal team continues to fight the IRS’s decision in court.

Shortly after the IRS’s decision, Renaissance cancelled its 401K plan for employees, and obtained special permission from Department of Labor in 2012 to put pieces of its Medallion Fund — a hedge fund portfolio available only to Renaissance Technologies’ employees — inside Roth IRAs, making future profits from those pieces tax-free. Instead of holding the hedge fund accountable for evading taxes, the federal government provided it with a new tax break.

Medallion’s average annual return is 71.8 percent. In 2015, Steven Rosenthal of the Tax Policy Center noted, “If Medallion averaged ‘only’ a 50% (not the 71.8%) annual return, a $350,000 Roth IRA would be worth about $20 million in 10 years, free of taxes and, in 20 years, $1.16 billion. By comparison, a $350,000 account that was taxed annually (at a 43.4% tax rate), would be worth about $4 million in 10 years and $51 million in 20 years.”

Renaissance Technologies received a second waiver in 2015 from the Department of Labor to roll the fund’s 401Ks into Medallion, which permits greater investment amounts. Democratic National Committee Chair Tom Perez, who served as secretary of Labor under the Obama administration when the waivers were granted, did not respond to Truthout’s request for comment.

In November 2017, Mercer announced his resignation as co-CEO of Renaissance Technologies effective in January 2018, and claimed he planned to sell his stake in Breitbart to distance himself from reports that he funded the media outlet and white nationalist Milo Yiannopoulos. Mercer noted he will still remain at the firm as an employee, focusing on technical research.

Other Political Contributions

Simons and Mercer have been prolific political donors since at least 1989, with Laufer’s frequent political donations beginning in 1998, giving millions to both Democrats and Republicans. Though officially retired from the firm, Simons and Laufer continue to serve as advisers and non-executive chairs. According to Open Secrets’ Federal Election Commission (FEC) data, Simons was the fifth-largest donor in the 2016 election cycle, with Mercer coming in ninth and Laufer, 22nd. Between the four of them, they’ve given money to the Democratic National Committee, the Democratic Congressional Campaign Committee, the Democratic Senatorial Campaign Committee, the Republican National Committee, the National Republican Congressional Committee, the Clinton campaign, the Trump campaign and the 2012 Obama campaign.

Though Simons has donated exclusively to Democrats in federal campaigns, he’s split his campaign donations* in New York among top Republicans and Democrats in the state. Recipients of his largesse include Independent Democratic Conference Chair Jeff Klein, who caucuses with the State Senate Republicans, granting them majority rule over the New York State Senate.

The New York Times reported in 2010 that Simons was a major influencer in pushing for New York Gov. David Paterson’s plan to overhaul New York’s public universities. “[I]t is a gift he has yet to give that has sparked the most intense discussion in the Capitol: a pledge of as much as $150 million, according to two people with knowledge of the discussions — but only if some version of Mr. Paterson’s plan is approved,” the Times reported. Simons told the Times he directly spoke with Assembly Speaker Sheldon Silver and Democratic Senate leader John Sampson at the time, urging them to move Governor Paterson’s proposal forward.

In New York, where Renaissance Technologies operates, the state government has been kind to hedge funds, as Renaissance Technologies’ owners have donated millions of dollars to New York Republicans and Democrats. In 2011, Renaissance Technologies appealed a ruling that ordered the hedge fund to pay up to $100,000 to the State of New York in back taxes for falsely identifying their security workers as independent contractors.

New York legislators have repeatedly introduced legislation, but have failed to close a carried interest tax loophole that is exploited by hedge funds and investment managers to get a lower tax rate meant for investors. Closing this carried interest loophole would provide the state of New York with an estimated $3.5 billion annually. It has not reached the New York State Senate or Assembly floor for a vote in 2017 or 2018.

Simons, Mercer and Laufer have continued pouring money into political campaigns and organizations into 2018. According to FEC filings, Mercer has donated more than $250,000 to the National Republican Congressional Committee, while Laufer gave $2 million to the Senate Majority PAC, more than $335,000 to the Democratic National Committee, $33,900 to the Democratic Congressional Campaign Committee, and Simons gave $1.5 million to the Senate Majority PAC since January 1, 2018. Mercer has since switched his employment affiliation with his donations from Renaissance Technologies to “retired.”

Renaissance Technologies did not respond to Truthout’s request for comment.

* Campaign financial disclosure data provided by the New York State Board of Elections

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