As the Huffington Post point out:
You haven't heard of carried interest? Basically, it's a share of investment income that goes to the private equity manager who oversaw the investment. Romney's carried interest income doesn't come from dividends on stock he owns, nor from the sale of stock that he once owned. The money wasn't generated from income that he had already paid tax on.
Wikipedia say this about carried interest:
Historically, carried interest has served as the primary source of income for the manager in both private equity and hedge funds. Both private equity firms and hedge funds tended to have a small annual management fee (1% to 2% of committed capital); the management fee is meant primarily to cover the costs of investing and managing the fund rather than for meaningful wealth creation for the manager.
As Rightardia understands 'carried interest", the person who has invested in the hedge funds is able to deduct the fees paid to the hedge fund manager when the investment is closed. Since these invstements last for several eyars, this deduction can be substantial.
Caried interest is taxed as the same 15 per cent rate of a short term capital gain.
The Blackstone Group's Stephen Schwartzman, has called President Barack Obama's proposal to tax carried interest as personal income "to Hitler's invasion of Poland."
source: http://www.huffingtonpost.com/2012/03/07/mitt-romney-carried-interest_n_1327004.html
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2 comments:
The treatment of “carried interest” is one of the biggest problems with the tax code. The carry allows private equity managers overseeing an investment deal to receive their compensation as tax-advantaged capital gains instead of as salary, which is taxed as ordinary income. http://bit.ly/xsYfBg
As the Daily Finance's Bruce Watson explains “The money wasn't generated from income that he had already paid tax on. Think of it as being sort of like a tip skimmed off the top of all the money that his company makes for its investors.” http://aol.it/z9mdIZ
If you earn your living making managing investments should you receive special tax treatment over another taxpayer who earns their living as an electrician? I don’t think so.
Mittens view is that carried interest like a capital gains from an investment has a risk. Of course, all business owners carry a certain amount of risk.
So do many occupations like law enforcement and power plant workers.
Carried interest should be, at best, an itemized deduction because it essentially represents a a management fee.
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