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Vanguard’s founder says speculators should pay fair share

MUTUAL FUNDS

THIS STORY APPEARED IN

December 24, 2011|By Mark Jewell

John C. Bogle says the Occupy movement has brought problems of wealth disparity… (associated press/file )

John C. Bogle counted himself among the 1 percent of wealthiest Americans a couple of decades ago. You might not guess that today, when you hear the 82-year-old founder of mutual fund company Vanguard rail against economic inequality.

He can sound almost like an Occupy Wall Street protester: “Our markets have gone crazy, and there is 200 times as much speculation as there is investing,’’ he says.

It has been 15 years since the low-cost investing pioneer stepped down as chief executive of Vanguard. It was Bogle who launched the first index fund in 1976. Vanguard Group has since grown into the largest fund company, managing nearly $1.7 trillion in US fund assets.

Bogle remains wealthy, but his income is a fraction of what he earned when he ran Vanguard. He is paid a modest retainer to run Vanguard’s Bogle Financial Markets Research Center, a think tank in Valley Forge, Pa.

He resists a label that applies to most people his age: “I’m so far from retired, it’s almost an embarrassment. I’m here in the office every day.’’ He is also writing his 10th book, “The Clash of Cultures: Investment vs. Speculation.’’ And he continues to deliver speeches.

Bogle says he is paying close attention to tax policies he considers unfair, including one that’s favorable to the fund industry and investors with taxable accounts. The top rate for dividends and long-term capital gains is historically low at 15 percent, as a result of the extension of Bush era tax cuts that Congress and President Obama agreed to a year ago. In contrast, top earners pay 35 percent on regular income. He doesn’t like that disparity.

Here are excerpts from a recent interview with Bogle:

Q. What do you think about the ongoing discussion over tax fairness?

A. I believe the rich should pay more, but that’s not a good platform for tax policy. What has gone wrong is that we’ve failed to recognize the difference between earned income and unearned income. Is it really fair for gamblers on Wall Street to pay a 15 percent rate when they make a winning investment, and an honest working person - a bricklayer for example - may pay an equal or higher tax on their wages than a gambler? That’s absolute absurdity.

Rates may have to be changed, but we also need to look at what is taxed, and how. Dividend income should be taxed at the same rate as ordinary income. As for capital gains, there ought to be some distinction between capital made by people who start businesses, and contribute value to society, and capital made by gamblers on Wall Street, some of whom win. Earned capital income should carry the regular dividend rate, but capital income gains by trading, and particularly short-term trading, should pay a higher tax, even than the present ordinary income rate.