Here's a Subject They All Agree On!!!

Carried interest could easily be defined as ordinary income rather than a capital gain, taxed thusly, and everyone would presumably be happy. Two things, though:

1. Does the waiting period to convert from ordinary income to a capital gain apply to both the carried interest and the investors interest?

2. If #1 is true, don't we want to incentivize the adviser as well as the investor to make long term investments, rather than churn the investments for short term gain?

BTW, the rich probably care greatly about picking the time for taxation, also. Make them accrue the gain immediately to ordinary income, much like an exercised stock option, if you really hate the rich and want them to suffer. Originally Posted by DSK

I think what you are getting at is - when is there a taxable event for the private equity fund managers? My guess is they would only be taxed when a firm in the PE fund's portfolio is sold at a profit/gain. And then it is only the fund managers who would be taxed at the higher (ordinary income) rate since it is compensation for services under their 2+20 fee structure. Nobody is talking about taxing the original investors (many of whom are tax-exempt pension funds or endowments anyway) at anything other than capital gain rates.

If the PE managers were taxed immediately on their share of gains before they are realized, it would be like taxing stock options BEFORE they are even exercised.

But I'm just thinking out loud here... we need a real tax expert like COG (cough, cough) to help us sort out your question.

What she might find to be even more difficult is to get people to hand over their money for investment while they agree to pay you 2% per year plus 20% of the money you make for them. Originally Posted by DSK

Well, if she tells them she is likely to lose money like Hillary's son-in-law, at least they won't have to fret about the 20% part!

Although there's much that may reasonably be considered "unfair" about the income tax, the notion that it "always favors the rich" is inexpressibly ridiculous. Do you realize that individuals in the top one percent of income earners pay approximately 40% of all federal income taxes? Do you realize that the capital gains tax rate (and thus the tax rate on carried interest) was increased to 23.8% three years ago?

And do you realize that the tax system you've been zealously promoting for years would be far and away the biggest tax reduction for wealthy individuals and high-income earners in modern history, and that it would therefore "favor" the "rich" to a far greater degree than any other tax plan imaginable? Good luck with that in today's political climate!
. Originally Posted by CaptainMidnight

Wasn't talking to you, Halfbright, and I'm not taking your bait here either. Tell us how equitable the income tax is.

The shareholders of the funds are making money from investments, hence cap gains treatment. The managers are making money by providing a service, which should be taxed at ordinary income rates. If not, that's a hell of a tax break for wealthy fund managers. Are we talking Bobby Axelrod here?

That being said, I oppose the income tax in any and all forms. It is immoral and abhorrent. And its primary purpose is for politicians to use to transfer wealth to their donor/owners at the expense of the middle class. The government picks winners and losers, not the market. The government tells you how much you get to keep of the money you earned. The government owns your income. What do we call a government that effectively owns the means of production?


You want to tax the rich? Go ahead. They'll find a way, or buy a way to beat the system every time. Remember, they own the Congress, not you.

I would invest that way if I had the money and know how. Just don't have money and know how. I would also pay any taxes owed. Here is more information I found on how huge corporations dodge their fair share of taxes owed.

In a 2015 Pew Survey, 64% say they feel some corporations do not pay their fair share of taxes, and 61% say some wealthy people fail to pay their fair share.(1)

Senator Sanders compiled a list of the top ten corporate tax dodgers – some paid no corporate taxes and received tax refunds and some incorporated in offshore tax havens with no corporate taxes. See link #2.

“...corporations are funding a smaller share of overall government operations than they used to. In fiscal 2015, the federal government collected $343.8 billion from corporate income taxes, or 10.6% of its total revenue. Back in the 1950s, corporate income tax generated between a quarter and a third of federal revenues(3)......

Corporations also employ battalions of tax lawyers to find ways to reduce their tax bills, from running income through subsidiaries in low-tax foreign countries to moving overseas entirely, in what’s known as a corporate inversion”(3)

Individuals making over $250,000 a year – about 2.7% of returns -- pay about 51% of federal income tax, but most people pay a bigger portion of their paycheck in payroll taxes than higher income earners. Why? The 6.2% Social Security withholding tax only applies to wages up to $118,500. For example, a worker earning $40,000 will pay $2,480 (6.2%) in Social Security tax, but an executive earning $400,000 will pay $7,347 (6.2% of $118,500), for an effective rate of just 1.8%.(3) The cap on wages for payroll taxes -- $118,500 -- should be raised.
______________________________ ________

1. Federal Tax System Seen in Need of Overhaul
Top Complaints: Wealthy, Corporations ‘Don’t Pay Fair Share’
http://www.people-press.org/2015/03/...n-in-need-of-o

2. TOP 10 CORPORATE TAX AVOIDERS
http://www.sanders.senate.gov/top-10...e-tax-avoiders

3. High-income Americans pay most income taxes, but enough to be ‘fair’?
http://www.pewresearch.org/fact-tank...mericans-pay-m

No corporation ever pays tax. The tax and compliance costs are all considered overhead and recouped in the price of the product or service they sell.

The shareholders of the funds are making money from investments, hence cap gains treatment. The managers are making money by providing a service, which should be taxed at ordinary income rates. If not, that's a hell of a tax break for wealthy fund managers. Are we talking Bobby Axelrod here? Originally Posted by CuteOldGuy

I don't get Showtime... is that Bobby Axelrod show worth watching?

If the carried interest tax break is rescinded, would the fund managers be taxed immediately or only when fund gains are realized? Remember, their 20% share of any gains is not paid out in cash. It remains tied up in the fund, which makes it hard for them to come up with the money to pay any taxes immediately. You wouldn't want their investment buy/sell decisions to be influenced by personal tax considerations. Could it be treated as deferred compensation? But then if it stays in the fund and continues to grow, isn't part of the future appreciation a legitimate capital gain rather than compensation for services? I can see lots of practical problems and accounting issues. In the case of PE firms that have gone public (Blackstone, KKR, Carlyle, etc.) these problems might be alleviated by the managers' ability to sell part of their publicly-traded shares in the PE firm/fund to pay personal taxes.

I would invest that way if I had the money and know how. Just don't have money and know how. I would also pay any taxes owed.

It's a free country. Anyone can get off his/her butt and soak up the "know how". You don't even need your own money - if you can show enough investment savvy, other investors will come to you. And the fund managers already do "pay any taxes owed" - you just don't think they owe enough.


Here is more information I found on how huge corporations dodge their fair share of taxes owed.

What is "fair share"? Who determines it? You? Bernie Sanders? Fairness is a totally subjective concept.


In a 2015 Pew Survey, 64% say they feel some corporations do not pay their fair share of taxes, and 61% say some wealthy people fail to pay their fair share.(1)

That's no surprise. Nearly everyone thinks they pay too much and everyone else pays too little.


Senator Sanders compiled a list of the top ten corporate tax dodgers – some paid no corporate taxes and received tax refunds and some incorporated in offshore tax havens with no corporate taxes. See link #2.

Corporations are supposed to enhance shareholder value, not maximize their payments to the US Treasury. Only an uneducated fool like Bernie Sanders would expect otherwise. Is General Electric being a poor corporate citizen if - for example - it lowers its taxes by selling more solar energy products or developing new "green" initiatives that Congress wants to encourage via the tax laws? And by the way, do you know what a "tax-loss carryforward" is? That's a major reason why some companies pay no taxes for certain years. Since you profess to care so much about fairness, if the government is entitled to a share of your profits, shouldn't it also share in your losses?


“...corporations are funding a smaller share of overall government operations than they used to. In fiscal 2015, the federal government collected $343.8 billion from corporate income taxes, or 10.6% of its total revenue. Back in the 1950s, corporate income tax generated between a quarter and a third of federal revenues(3)....

Back in the 1950s, there were no taxes for Medicare and the SS tax rate was a fraction of what it is now. Because those new tax streams grew, corporate taxes fell as a percentage of the federal government's overall revenues. Are you familiar with the concept of "double taxation"? Corporate earnings are paid out to shareholders in the form of dividends. They are taxed first at the corporate level, and then again at the shareholder level. If you do the math, the end-result is an EFFECTIVE tax rate that is far higher than it appears from looking at the corporate or individual rates separately.


Corporations also employ battalions of tax lawyers to find ways to reduce their tax bills, from running income through subsidiaries in low-tax foreign countries to moving overseas entirely, in what’s known as a corporate inversion”(3)

I hate lawyers and consider this to be unproductive activity, but corporations wouldn't employ those guys unless they paid for themselves by lowering taxes in ways that are entirely legal. Are you aware that the US corporate tax rate is the HIGHEST in the industrialized world? When will we hear Bernie Sanders complain about that? If you really want to put those battalions of tax lawyers out of business, just lower the damn rate to what other countries are levying!


Individuals making over $250,000 a year – about 2.7% of returns -- pay about 51% of federal income tax, but most people pay a bigger portion of their paycheck in payroll taxes than higher income earners. Why? The 6.2% Social Security withholding tax only applies to wages up to $118,500. For example, a worker earning $40,000 will pay $2,480 (6.2%) in Social Security tax, but an executive earning $400,000 will pay $7,347 (6.2% of $118,500), for an effective rate of just 1.8%.(3) The cap on wages for payroll taxes -- $118,500 -- should be raised.

Let's see - you admit some people pay a much higher income tax rate but you complain that they pay a lower effective SS tax rate? So the latter is unfair but not the former? Why don't we just switch entirely to a flat tax - isn't that as "fair" as you can get? Everyone would pay the exact same rate! Isn't that your argument here? Or do you only find "unfairness" where the remedy would allow the government to grab more revenues? Originally Posted by SassySue

.

I think what you are getting at is - when is there a taxable event for the private equity fund managers? My guess is they would only be taxed when a firm in the PE fund's portfolio is sold at a profit/gain. And then it is only the fund managers who would be taxed at the higher (ordinary income) rate since it is compensation for services under their 2+20 fee structure. Nobody is talking about taxing the original investors (many of whom are tax-exempt pension funds or endowments anyway) at anything other than capital gain rates.

If the PE managers were taxed immediately on their share of gains before they are realized, it would be like taxing stock options BEFORE they are even exercised.

But I'm just thinking out loud here... we need a real tax expert like COG (cough, cough) to help us sort out your question. LOL -- good luck with getting him to give an informed, coherent answer to ANY tax-related question! Originally Posted by lustylad

I agree, as I can't imagine anything short of realization (via outright sale or exchange) generating a tax liability. I know that some uber-progressives have, at times, tried to rally support for taxing unrealized gains. That might fly in Professor Piketty's fantasy world, but not elsewhere.

Another question that has come up from time to time involves cases where the manager invests some of his own capital alongside passive partners, rather than just work for fees and carried interest. After all, it's obviously appealing to see that the fund manager "eats his own cooking," so to speak. In such cases, it's expected that the manager would pay a blended rate (some cap gains tax at 23.8%; some income tax at 43.4%), according to the deal structure and determined sharing ratios.

Wasn't talking to you, Halfbright, and I'm not taking your bait here either. Tell us how equitable the income tax is. Originally Posted by CuteOldGuy

No, but I was addressing you, Mr. Dunning-Kruger Poster Boy, since you made one of your typically clueless posts. When did I say anything that could reasonably be interpreted as a claim or insinuation that the income tax is "equitable." I simply noted the incongruity and ridiculousness of your statement.

You want to tax the rich? Go ahead. They'll find a way, or buy a way to beat the system every time. Remember, they own the Congress, not you. Originally Posted by CuteOldGuy

Really? If we "own" the congress to anything like the extent you seem to believe, then why are we not able to get them to simply pass the FairTax, as you suggest, get rid of all other taxes, and reduce our tax liability to a tiny fraction of what it is now by redistributing almost the entirety of it downward to the less affluent? "Beating" the system, at least to such an extent as to drastically reduce one's tax burden, is a lot more problematical than you think. You would realize that if you had any understanding of how taxation actually works in the real world.

No corporation ever pays tax. The tax and compliance costs are all considered overhead and recouped in the price of the product or service they sell. Originally Posted by CuteOldGuy

That's incorrect. The corporate tax burden is shared by a combination of capital (investors), employees, and customers.

Professor, since you are so highly credentialed in this field, would you mind treating the forum's readership to a brief primer on how this burden is shared, how views of the division thereof have changed over the last 50 years, and how it varies over time and across industries?

(Oops, sorry! I almost forgot. That gets into a topic which we refer to as "tax incidence." Never mind!)
.

You are simply wrong, Captain Halfbright. I also taught cost accounting. If I had a whiteboard, I could explain it to you. There is a target net profit that every company wants or needs to meet. All expenses, including tax and compliance costs are figured in to reach that target. If they can't reach that target, they raise the price, or cut costs. They don't "absorb" them. That's just bullshit.

I never said "we" own the Congress. The mega-wealthy own the Congress. You aren't rich enough to have any influence. Hell, Trump is barely rich enough to have a significant influence. He buys zoning changes and building codes. If you think you are one of the "rich" in a position to influence policy, you are delusional. And you have never offered any alternative tax plans, nor have you shared any significant changes to the current system that you'd approve. One can only presume you're happy with the system as it is. Which is fine. We can disagree. Just be honest about it.


Oh, you are correct that income should only become taxable when it is realized.

You are simply wrong, Captain Halfbright. I also taught cost accounting. If I had a whiteboard, I could explain it to you. There is a target net profit that every company wants or needs to meet. All expenses, including tax and compliance costs are figured in to reach that target. If they can't reach that target, they raise the price, or cut costs. They don't "absorb" them. That's just bullshit.

I never said "we" own the Congress. The mega-wealthy own the Congress. You aren't rich enough to have any influence. Hell, Trump is barely rich enough to have a significant influence. He buys zoning changes and building codes. If you think you are one of the "rich" in a position to influence policy, you are delusional. And you have never offered any alternative tax plans, nor have you shared any significant changes to the current system that you'd approve. One can only presume you're happy with the system as it is. Which is fine. We can disagree. Just be honest about it.


Oh, you are correct that income should only become taxable when it is realized. Originally Posted by CuteOldGuy

Yes, that's correct, income should only be taxable when it's realized, of course. But all capital gains are still income and so is interest income. It should be taxed just like working wages. Why is there a cap on payroll taxes after a certain amount? Is that fair? Maybe the cap should be raised just a little so that we could bring the deficit down some. From the very beginning of history taxes have gone down, down, down for the very rich. And, I am talking about the very, very rich. When I say this, I am talking percentage wise. So please don't take my words and misconstrue them. A flat tax might be a good idea, but in a way, how could it be fair to people who make only 10,000 per year and were being taxed at 25 percent? I was thinking more on the lines of a consumer tax where people are taxed on how much they spend or consume. Ever thought of that?

Yes, that's correct, income should only be taxable when it's realized, of course. But all capital gains are still income and so is interest income. It should be taxed just like working wages. Why is there a cap on payroll taxes after a certain amount? Is that fair? Maybe the cap should be raised just a little so that we could bring the deficit down some. From the very beginning of history taxes have gone down, down, down for the very rich. And, I am talking about the very, very rich. When I say this, I am talking percentage wise. So please don't take my words and misconstrue them. A flat tax might be a good idea, but in a way, how could it be fair to people who make only 10,000 per year and were being taxed at 25 percent? I was thinking more on the lines of a consumer tax where people are taxed on how much they spend or consume. Ever thought of that? Originally Posted by SassySue

The ultra rich control the income tax for their benefit. And yes, I think a consumption tax is a good idea, but that's not popular here. Just watch.

Yes, that's correct, income should only be taxable when it's realized, of course. But all capital gains are still income and so is interest income. Originally Posted by SassySue

Apples and oranges, ...

... if you are suggesting "taxing" the gains based on a calendar target date like "interest," then you will have to redefine "gains" and regulate the manner in which the "capital" is treated prior to the target date.

One should study the congressional history on the passage of the income tax.

Then compare it to the "congressional history" on passage of "Obamacare"!

If one starts looking at taxes as a method of shifting wealth or wealth redistribution, then one will begin to negatively influence the economic growth that generates the taxes. For instance you can claim "corporations" don't pay "taxes," but in reality that is simply not correct. Companies pay taxes indirectly by providing jobs for individuals who pay taxes (income and property) and by paying property taxes .... and in some instances sales taxes. Whining about companies and taxes is a "boogie man" argument. It's being divisive for political gains.

Apples and oranges, ...

... if you are suggesting "taxing" the gains based on a calendar target date like "interest," then you will have to redefine "gains" and regulate the manner in which the "capital" is treated prior to the target date.

One should study the congressional history on the passage of the income tax.

Then compare it to the "congressional history" on passage of "Obamacare"!

If one starts looking at taxes as a method of shifting wealth or wealth redistribution, then one will begin to negatively influence the economic growth that generates the taxes. For instance you can claim "corporations" don't pay "taxes," but in reality that is simply not correct. Companies pay taxes indirectly by providing jobs for individuals who pay taxes (income and property) and by paying property taxes .... and in some instances sales taxes. Whining about companies and taxes is a "boogie man" argument. It's being divisive for political gains. Originally Posted by LexusLover

What about GE? Don't you remember the post I made about how they made record profits and paid zero dollars in income taxes? They even got a huge return!!!! That's ridiculous. And you cannot possibly justify that kind of nonsense by saying they provide jobs when huge multi-national corporations send so many jobs overseas.

Here is another link to the article in that post:

http://www.sanders.senate.gov/top-10...e-tax-avoiders

And you cannot possibly justify that kind of nonsense by saying they provide jobs when huge multi-national corporations send so many jobs overseas.... Originally Posted by SassySue

Are you worried about the jobs going overseas or the "zero" taxes they pay?

What "jobs" are going overseas? Garment makers' jobs?

Why do I care if "GE" makes a ton of money?

And why is making a lot of money "nonsense"?

Do you dislike Trump because he has made and makes a lot of money?

Finally ... that was NOT an "article" you posted? IT IS A link to Bernie's pablum.