We Already Have a Wealth Tax. It’s Just Paid to Hedge Fund Managers.

Volatility in the markets is very scary for ordinary U.S. citizens who face real repercussions from economic downturns. But this volatility is positively golden for traders on Wall Street and at hedge funds.

I spent seven years working on Wall Street, and the traders I knew prided themselves on making money whether the market was crashing or surging. That’s why I’m so skeptical of the now two billionaire hedge fund managers who predict a market crash if Elizabeth Warren or Bernie Sanders is elected president. These billionaires don’t care about the horrific consequences that a market downturn would have on ordinary U.S. citizens. They care about their tax rate.

Tuesday, billionaire hedge fund manager Paul Tudor Jones told the Robin Hood Investors Conference that if Sen. Elizabeth Warren is elected president, the U.S. stock market will drop 25 percent due to fears over her proposed wealth tax. Jones is parroting the exact prediction that a different billionaire hedge fund manager, Leon Cooperman, made two weeks ago. Cooperman told CNBC that the market would tank by 25 percent if either Warren or Sen. Bernie Sanders wins the general election. “What is their problem with billionaires?” he lamented.

These billionaire traders aren’t actually concerned about the economy, and they sure aren’t telling you what they really think about where the market would go should Sanders or Warren win the presidency. No trader I ever worked with would ever give away market advice for free. Traders work hard to develop an “edge,” be it from obscure research, building the fastest trading system, or even just leveraging the rumor mill. Hedge fund managers are even less likely to tell you what they really think about the direction of the market, because their wealthy clients pay enormous sums for their opinions. You never give up your edge to others for free.

All the wealth tax tantrums among these billionaire traders belie the simple fact that they already charge a wealth tax, of sorts, themselves. Hedge fund managers charge their clients an upfront fee of 2 percent of their entire investment, just to get in the door. This just so happens to match the base wealth tax rate Warren is proposing: 2 cents on every dollar. Hedge fund managers then also take 20 percent of any profits they make for their clients each year. If hedge fund billionaires are happy to charge their clients a 2 percent participation fee, they should expect to pay at least that same 2 percent fee themselves to participate in society. Just as a hedge fund’s initial fee gains an investor access to a fund, so does a wealth tax help provide for the basic infrastructure, education and, well, bank rescues that the federal government has historically provided.

I also think that Jones and Cooperman are just scaremongering, rather than voicing any real concern, because traders like them don’t actually care if the market goes up or down. The entire premise of a hedge fund is that any manager worth their salt is so clever, they’ll make money for you in up markets or down. But while a plunge in the stock market may not scare them, the prospect of their own taxes going up absolutely does.

Jones’s net worth is $5.1 billion. Cooperman’s, $3.2 billion. Under Warren’s proposed wealth tax, which only kicks in after $50 million in wealth, Jones would owe $123 million per year — a 2 percent tax on the first $950 million, and a 3 percent tax on the remaining $4.1 billion. Cooperman would owe $85 million annually. Under Sanders’s tax on extreme wealth, which starts at 1 percent for wealth above $32 million, and increases gradually till it maxes out at 8 percent for wealth over $10 billion, Jones would owe $263.7 million each year, and Cooperman would owe $148.7 million.

Sanders and Warren aren’t the only Democratic primary candidates supporting a wealth tax. Billionaire Tom Steyer, himself a former hedge fund manager, has proposed a wealth tax of 1 percent on those with over $32 million in net worth, under which Jones would owe $58.7 million, and Cooperman would owe $31.7 million.

Julián Castro has also proposed a Wealth Inequality Tax for those in the top 0.1 percent of fortunes, which would tax income from capital each year at the same rate labor income is, rather than only when that capital is sold.

Other billionaires, and those who love them, have done their own pearl-clutching about Warren and Sanders’s support for a wealth tax. When CNBC’s Jim Cramer said on September 10 that financial executives were fearful of Warren winning, the senator proudly quote-tweeted the segment with the quip, “I’m Elizabeth Warren and I approve this message.” Billionaire fund manager Roy Baron said last Friday that Warren’s wealth tax is “pretty nuts.” It makes sense that he’d be bothered: Baron’s personal net worth is 2.4 billion, and he’d pay $61 million, $106.7 million, and $213.4 million under Steyer, Warren and Sanders’ plans, respectively. Meanwhile, billionaire and former New York City mayor Michael Bloomberg said in January that Warren’s wealth tax was unconstitutional, saying of the plan, “It’s called Venezuela.” Bloomberg, who is worth an astonishing $51.2 billion, would owe $512 million under Steyer’s plan, $1.5 billion under Warren’s, and $3.8 billion annually under Sanders.

If it sounds like these billionaires would be paying a whole lot of money if a wealth tax were implemented — that’s true! But these taxes wouldn’t put a dent in these billionaires’ bottom lines, and the money could be used to fund popular and needed investments to support the needs of the U.S. public. Warren’s wealth tax is how she intends to fund everything from free college to universal child care to a $450 billion boost in public high schools. And it’s also hardly the first time Wall Street or its allies have disingenuously warned about harms to the market should they face political accountability. Long before Rep. Maxine Waters (D-California) assumed the chair of the powerful House Financial Services Committee, a former McKinsey consultant warned in 2012 that if Waters ever became chair, “Most of the international banks would start folding their tents.” Chairwoman Waters has been doing her job overseeing the financial markets for 10 months now, and the international banking giants have not packed up and left.

When I was working at Merrill Lynch right before the 2008 financial crisis, one of the traders told me that no matter what happened in the world, you have to ask yourself, “how do I trade this?” What he meant was that a trader’s task is to figure out, given the news of the day, which bets would make the most money.

While watching the strength of both Sanders and Warren in the polls, these billionaire traders are, as they always do, trying to maximize their profits. But in order to do so, they need to enlist the help of a scared public, whom they hope to intimidate away from any support of a meaningful wealth tax. These billionaires may have fooled their wealthy investors into giving them millions in fees each year — but that doesn’t mean the public has to buy their nonsense.