Timmy G has said multiple times that he intends/expects/prays the fiscal deficit will be reduced from its current level of around 13% of GDP to 3%. That is a massive gap to fill and the government’s math is already working against itself. This year’s budget assumed an unemployment rate of 8.1%- which it was for about 15 seconds. But it’s at 9.4% now and climbing and that isn’t good news for tax receipts. So the government needs to find somebody to pay for their ridiculously optimistic economic assumptions. One potential candidate is VC firms.
The carry VC firms make is currently taxed at the capital gains rate of 15%. Mark Hessen, the president of the National Venture Capital Association, says there is a risk of this jumping to the ordinary income rate of 38%.
Mr. Heesen said that carried interest is now under threat because last week, Charles B. Rangel, chairman of the House Committee on Ways & Means, indicated that over the next two months, the committee would look everywhere possible to find money to help pay for health care reform. President Obama’s budget also proposed that carry be taxed as ordinary income.
“If we lose this battle on tax and carried income, it’s going to be disastrous for this industry,” said Dixon Doll, co-founder and general partner of the venture capital firm DCM. He called the fight “one of the battles of our lives.”
At some point the Washington braintrust is going to have to admit that their fiscal budget assumptions were not all typos and, if humanly possible, engage in a healthy debate on how to fix the problem. Until that point it seems like rewriting the tax code on an ad-hoc basis will have to do.
Venture Capitalists Fight for Carried Interest [NYT]
The “healthy debate” could start by not having misleading statements like this one…
“says there is a risk of this jumping to the ordinary income rate of 38%”
Outstanding! The very people who are funding creative innovation and new technologies (which, frankly, will be the only way to spur growth and get people employed) will now get fucked by an additional 23%. Excellent work DC, per usual.
Uber alles America!
JERRY: What did you tell her?
GEORGE: I told her that she was pretentious.
JERRY: Pretentious!? The woman has my tax papers. You told her she was
pretentious? The IRS. They’re like the MAFIA. They can take anything they
want
Um… same thing’s going to happen to all of PE, right?
The “healthy debate” could start by not having misleading statements like this one…
“says there is a risk of this jumping to the ordinary income rate of 38%”
If closing loopholes is considered ad-hoc, then more power to them. Keep closing them.
And @1 is correct. Gregman is no tax lawyer.
disasterous for this industry… Meaning we as individuals will make a little less after tax. Doubt that’s going to cause them to pack up and move to Panama.
Love how the VC industry guy trys to validate the concept that VCs shouldn’t be treated as buyout shops because VCs “add value”. What an effing tool.
Carried interest should not be treated differently than earned income currently is. It is their fucking jobs to get a return just as building cars is a factory worker’s job. The classification of their income should be the same.
VCs and PEs should be grateful for the preferential treatment given them by the IRS for so many years.
So we should start taxing a public equity long term gains at ordinary income rates also?
Also, real estate.
Can’t hurt to at least be reasonably fair about this.
@7
They are already packing up but not because of taxes. Haven’t you noticed?
eliminate this bullshit fiat currency completely and instead compensate people with bj’s (VP and above), hojo’s (avp and below), md 20/20s (all), and splifs (all).
pretty sure i just ended ‘the recession’right there.
Go home, Greg…
ANUS.
I wish people would stop pretending as if we live in a democracy anymore. It’s becoming quite exasperating…
ANUS.
@15
Sounds like the clown business couldn’t get TARP money.
10 Carried interest is not the same thing as lt captal gains on RE or public equities. Its more like investment management fees. Like saying Fidelity should pay only 15% on those mutual fund loads they collect. Which could be why your argument is seen so rarely. The usual nonsense is some variation of 1) this will discourage creative investment or 2) public pension funds are big PE investors; this will raise their fees and hurt their returns so at the end of the day this is a tax on the lower middle classes.
Where’s the Greg’s mom / Greg’s dad poster? That guy kills me for some reason.
Greg – I loved this post. It is by far the best post you have written to date and the BEST post on DB by far! Do not let these bad people get you down. You are doing just fine. You are a good, fine and decent person and soon enough all of these people will see what we see in you!
– Love, Mom
ps. Be home on time.. meatloaf.. your favorite!
@20: Thank you. Good stuff.
Meatloaf and a MomJob?
Dylan Ratigan is Anus’s father.
VC? You don’t mean Viet Cong, do you Greg?
Di di Mau! … Mau! ……. MAU!!!
VC firms should be forced to declare rental income on their beachfront villas.
@24
I was about to post that. Oh well. I have to say I am so shocked that things didnt go was well as a politician told me they would. Can someone please shave my wool it’s summer time and I’m getting hot.
where does the bread line start?
“Carried interest” is just another way of describing a partnership interest that someone is given in exchange for SERVICES rendered by the individual.
If I am getting taxed at ordinary rates on wages, for services I render to my employer, why shouldn’t the poor “carried interest” holder be treated the same?
@1 stop looking at yourself in the mirror and get back to f*cking work. The creative innovation and new technologies are waiting.
Nobody’s afraid of a defunct record label.
Hey I’ve got a novel idea:
Let’s tax the damn American Indians already! I mean its terrible what we did and all but that was a good 300 years ago. AmIright?
Has anyone informed them that given the massive write downs in VC and PE portfolios there isn’t going to be any carried interest profits for years to come!? Are these people delusional…wait, don’t answer that.
The best way to solve this problem is for government to stop spending our money on the special interest group du jour and everyone pays a low flat tax on all income.
Central planning via the tax system works as well as central planning in general. Soon, our taxes will be sky high and everyone will spend most of their time figuring out how to avoid paying taxes instead of engaging in productive activity – like everyone in government already does now.
Venture capital firms are having trouble because they do not think outside the box enough, despite allegedly investing in innovation. Innovation is not funding another social networking site. Innovation is thinking about the widest range of possibilities and picking the best one. Specifically, VC firms should invest in industries other than technology. Almost all are focused exclusively on IT, biotech, communication technology, etc. They should really be called technology capitalists.
“Timmy G has said multiple times that he intends/expects/prays the fiscal deficit will be reduced from its current level of around 13% of GDP to 3%.”
This is some wacky grammar, boy.