The trove of tax records behind ProPublica’s “Secret IRS Files” series contains plenty of examples of billionaire financiers who avoided Medicare tax despite earning huge amounts from their companies. In 2016, Steve Cohen, the owner of the New York Mets, paid $0. So did Stephen Schwarzman, head of the investment behemoth Blackstone. Bill Ackman, the headline-grabbing hedge fund manager, was able to shield almost all his income from the tax.
But by the 1970s, creative uses of limited partnerships proliferated. One variety caught Congress’ attention. Government employees were covered by public pensions and thus were not eligible for Social Security, but brokerages were pitching these employees on limited partnerships as a way around that. The government workers could buy a small share of a business and receive self-employment income that qualified them for future Social Security benefits.