In private equity, fund managers are typically compensated with both a fee (two percent of assets) and substantial share (20 percent) of the fund’s profits. Those profits are called “carried interest” and they’re classified as long-term capital gains, which are taxed at 15 percent — much lower than wage income, on which the top marginal rate is 35 percent. But unlike the fund’s main investors, the manager typically doesn’t put up more than a nominal share of the fund’s actual capital. In other words, this so-called “carried interest loophole” allows private equity fund managers to treat the money they make in exchange for their labor as if it was a return on an investment — even though they haven’t made such an investment at all.This kind of information is not really common knowledge. To me, these types of rules are so byzantine, and so unused by regular folks, that exposing them is a good thing, even if it might not be politically expedient to Mitt Romney.
Thursday, January 5, 2012
Making Money from Money, not Work
Brian Beutler at TPM explains why Romney is so reticent to provide his tax returns to the public: he suspects that it will not only let people know just how stinking rich he is (hint: he's probably in the 1%), but also drive home that money fund managers make a lot of investment profit that is not taxed at the normal tax rates: