Posted on 01/13/2012 1:51:50 AM PST by Cincinatus' Wife
The on-again, off-again battle over how to tax the compensation of private equity managers may be on again, thanks to the confluence of two seemingly unrelated events.
The first is the controversy over the role of Bain Capital, the investment partnership whose founders included Republican presidential hopeful Mitt Romney. The second is the disclosure by another firm, The Carlyle Group, of how its top executives are compensated.
Both have heightened the focus on what these outfits do and how they are taxed. Bain and Romney, of course, have come under withering criticism from Newt Gingrich and Rick Perry, who allege the firm’s investment strategy has led to reams of pink slips at companies it acquired.
That story is much more complicated than Romney’s opponents suggest. Nonetheless, it has lots of people thinking about what private equity does.
Also this week, Carlyle disclosed its executive compensation in some detail, providing a rare glimpse into how investment firm managers are paid. Combined with the Bain flap, it will surely reopen the five-year old debate over the special tax treatment these partnerships receive through a mechanism known as carried interest or, in short, “the carry.”
The carry allows general partners in investment deals to receive compensation in the form of tax-advantaged capital gains, which are taxed at 15 percent, rather than as salary, which would be taxed as ordinary income with a top rate of 35 percent. This happens because the managers are paid with a fee (up to 2 percent) plus 20 percent or more of their investor’s profits. Those profits are taxed as capital gains even though the general partners may have little or no money of their own at risk in the deal.
Carlyle’s disclosure opens a small window into how this works....
(Excerpt) Read more at forbes.com ...
This is an article about carried interest, which is a certain partner — usually a working partner — to get a disproportionately large share of the profit from a venture. It is not unusual and has been around since at least the 70s. If the venture throws off capital gain income, the carry partners get capital gain like anyone else. This was never controversial when Romney did it. There was a move to tax carry like ordinary income in the Dem controlled Congress but they didn’t do it because their supporters vetoed it. Obama didn’t push it because he gets Wall Street money too. You can argue that it should be ordinary income but until it is, there is nothing wrong with taking it as compensation. Especially since it is putting your compensation at risk (imagine not getting paid unless you were successful at a project). This is a bogus line of attack on Romney.
Attack?
Everyone is just getting a good look at the entire picture.
Bain did at least prat of what it did on our dime.
…”Chris Cavarretta, of Stratham, New Hampshire, said his fellow Mormon friend met Romney last week at a campaign stop and told him to “choose the right”—a popular LDS slogan similar to “What would Jesus do?”
“His eyes lit up, and he said, ‘Yes, always.’”…..
http://www.freerepublic.com/focus/news/2832423/posts?page=1
Bain Capital is part of the K-Street to Wall Street “scratch my back and I’ll scratch yours” culture that has become corrupted.
Free market capitalism is the ticket to a strong, free society, but the K-Street-Wall Street cousins have become too cozy.
Why is Mitt Romney against releasing his tax returns?
Your point is?
Imagine that Mormon slogan coming out of Obama's mouth during a "Romney-Obama" debate.
“A previous story incorrectly reported that Mitt Romney’s former firm, Bain & Co., was part of a team of consulting companies that advised President Barack Obama on a decision to shutter car dealerships during the auto bailout.
Bain & Co. said it has no connection to the “Bain Consulting” firm referenced in government documents.”
http://www.cnbc.com/id/45979278
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