Do US law makers finally have capital in the crosshairs?

 Financial Times Europe 2 Oct 2026 Oren Cass The writer is an FT con trib ut ing editor and chief eco nom ist at Amer ican Com pass

 Greed is so often the undo ing of an oth er wise bril liant scheme. Never sat is fied, people become over con fid ent, push the envel ope too far. And everything comes tum bling down. The high-fly ers of fin ance seem headed towards a sim ilar fate, as cap ital’s share of US income con tin ues to rise, its share of tax pay ments con tin ues to fall, inequal ity wor sens, wealth con cen trates and defi cits become unsus tain able. All the while the fin an cial engin eer ing gets ever more absurd. For just one example, take AQR, the hedge fund behind a fairly recent innov a tion in tax avoid ance called the “tax-aware long-short” account, which wraps lever aged, straddled port fo lios around con ven tional equity indices or estab lished fund strategies to gen er ate large har vestable losses and indefi n itely defer tax a tion on gains. Close to $200bn has poured into the strategy at AQR and its imit at ors such as Quan tinno, which wel comes investors “to the next evol u tion of tax-loss har vest ing” and has seen its assets swell from $2bn to $70bn in just a few years. Such elab or ate games man ship helps some of Amer ica’s highest earners to reduce taxes on even their wage income. 

The Fin an cial Times repor ted earlier this year that fath ers at a local sports game in Green wich, Con necti cut, “were fix ated on AQR’s Delphi Plus fund, which spe cial ises in ordin ary income losses”. The extraordin ary wealth that these indi vidu als and their money man agers had already accu mu lated wasn’t enough, nor was the favour able tax treat ment afforded to their cap ital gains, which in effect meant they might be able to pay a lower share of their income in taxes than their sec ret ar ies did. They had to avoid pay ing taxes alto gether, and then claim this as the right eous course. AQR chief Cliff Asness has said that the moral issue here is that of work ing for a cli ent’s interests. But things are surely not that simple. A fidu ciary duty to a cli ent requires put ting his interest above any other, but it does not require pur su ing every poten tial action or devel op ing every poten tial product. The eth ical busi ness owner or man ager oper ates within not only the let ter but also the spirit of the law. It is the let ter that determ ines whether a pun ish able viol a tion has occurred. 

But as Milton Fried man observed in his fam ous essay arguing that “the social respons ib il ity of busi ness is to increase its profits”, the “basic rules of the soci ety” include “both those embod ied in law and those embod ied in eth ical cus tom”. Eth ical cus tom may be a more sub ject ive mat ter, but a good place to start is with the eas ily dis cern ible intent of the laws estab lished through the demo cratic pro cess. The defend ers of the latest “tax aware” funds make a com ical effort to equate the exotic man oeuvres with garden-vari ety deduc tions and retire ment sav ing. But the exer cise must be enorm ously com plex to jus tify the huge fees that the funds charge, allow ing the fin an cial wiz ards to pocket a good chunk of the rev enue they divert from the pub lic purse. Clearly, they are embar rassed by all this, or at least nervous about the poten tial con sequences. They should be. 

The polit ical winds are shift ing and even a busi ness-friendly Repub lican admin is tra tion is fed up. On Monday, the US Treas ury depart ment issued a notice of plans to scru tin ise a range of schemes. “Treas ury is ser i ous about crack ing down on trans ac tions designed to dodge taxes or exploit our fed eral tax code,” warned Treas ury sec ret ary Scott Bes sent in a social media post. Begin ning in the 1980s, the US tax code was rebal anced in favour of cap ital, in the belief that cre at ing bet ter condi- tions for its hold ers to deploy it and reap the rewards would ulti mately redound to the bene fit of all. The the ory required some trust that the cap it al ists would indeed pur sue their profit in ways that would be broadly bene fi cial. Instead, we got a meta stas ising fin an cial sec tor ded ic ated not to pro duct ive invest ment but to help ing the rich get richer by mov ing money in circles, extract ing wealth from the real eco nomy and then pay ing no taxes at all. The cent ral argu ment against wealth taxes, high mar ginal tax rates and taxes on mobile cap ital is that they will merely fuel avoid ance and push pro duct ive activ ity away. But if we get the same with low tax rates, what then? The US is now in a fiscal crisis and cap ital should expect to find itself in the crosshairs. If the fin an cial sec tor is determ ined to be a socially cor ros ive drag on the eco nomy, then it is going to have to be taxed that way.