A new proposal to tax carried interest as ordinary income was just attached to a larger tax and spending bill that could be voted on by the House as early as tomorrow.
The bill would have a huge impact on private equity, venture capital and other private partnerships that rely on carried interest as their main source of income. The move would also impact some hedge funds that pay significant long-term capital gains. Washington has been toying with the tax increase for nearly three years, but the the current bill, sponsored by Sen. Max Baucus and Rep. Sander Levin, marks the first time the Senate and the House have come together on the issue.
Venture capital firms, real estate and energy partnerships have lobbied hard to be excluded from the tax increase, arguing that it will hurt start-ups looking to raise capital. But that effort has seemed to fail.
A summary of the bill, cited by Bloomberg, said it would allow carried interest that reflects return on invested capital to continue to be taxed at the lower capital gains rates. For other funds, “the bill would require investment fund managers to treat 75 percent of the remaining carried interest as ordinary income,” the summary said.
One only has to look at KKR’s latest S-1 filing to understand how significant the tax increase will be.
If the changes suggested by the administration or any of the proposed legislation or similar legislation were adopted, income attributable to carried interest may not meet the qualifying income requirements under the publicly traded partnership rules, and, therefore, we could either be precluded from qualifying as a partnership for U.S. federal income tax purpose or be required to hold interests in entities earning such income through a taxable U.S. corporation. If we were taxed as a corporation, our effective tax rate would increase significantly. The federal statutory rate for corporations is currently 35%. In addition, we would likely be subject to increased state and local taxes. Therefore, if any such legislation or similar legislation were to be enacted and apply to us, it would materially increase our tax liability, which could well result in a reduction in the market price of our common units.
In addition, if the proposed legislation is adopted, it could increase the amount of tax KKR’s principals and other professionals would be required to pay, thereby adversely affecting KKR’s ability to offer attractive incentive opportunities for key personnel.
Flat tax rate is the only way to go.
gg my job
-P.E. Anal-yst
Voting this clown and his union cronies out of office is the only way to go. TAX TAX TAX… what were you people thinking voting for him?
I understand the government desperately needs the cash and these particular industries may come across as “barbaric” at times but they’re crucial for economic development, particularly in the case of venture capital. Your government down there seems to be full of pandering idiots and for once ours seems to have a clue. Now if only we could reduce our trade dependancy….
@3 do you actually think this board is full of left-of-center people? Really??
The Messiah and his cronies are going to raise taxes, redistribute wealth, nationalize even more of our economy and inhibit economic growth regardless of the cost to the nation. We are only at the beginning of this Socialist train wreck.
@5 yes I do… WS gave more money to Obama then any other industry except the teacher’s union.
Pelosi is always looking for campaign cash……why not pay her an office visit, and bring your check book along.
@7 tits or GTFO
@5 do you know how much GS contributed to Obama’s campaign?
SHUT THE FU… wait, this is painfully relevant.
Are any Republicans running for Congress from New York City?
The contributions were not made so BO would win, they were made because he was going to win/in case he won. Lot of good they did, or maybe things could get worse.
In the words of Heir Merkel “…then we might not do the right thing technically, but we will do the right thing politically.”
Do any of you assclowns actually vote? I live in the upper east side and we have a fucking DEMOCRAT representing us because no one shows up on election day
My guess is that the carried interest tax rate goes up, the unions hate the PE firms, and Obama wants the tax revenue to fund the larger welfare state he is creating. This is pretty much a done deal from the Dems perspective.
Does anyone think this will reduce the flow of talent into PE to any noticeable extent? I don’t see the world of hedge funds being substantially affected, and many (most?) venture capital funds don’t produce any carry anyway. I think the effect, if there is one, will mostly be seen among the small PE funds chasing the middle market and lower middle market deals, since a smaller chunk of the compensation there comes from management fees.
*Frau Merkel
there are way too many liberal idiots on the street, anyone who thinks wall street is full of wasps and conservatives is an idiot
@15 I live on the UES too and yes I vote. It doesn’t do much good.
@13 so you are saying WS didn’t vote for Obama they just attempted to pay him off with some of the biggest donations in election history. I am going need to disagree with that. WS voted for him and gave him the Benjamins. Please wake up.
If Bess wont post it I will-
Obama’s Brown Shirts at work on a Tuesday
http://money.cnn.com/2010/05/19/news/companies/SEIU_Bank_of_America_protest.fortune/
There should be a tax on all the carried posts you copy verbatim from other sites.
@17 You’re spot on. This is going to affect the small/mid-market buyout shops a lot more than the mega funds that are making hand over fist in management fees.
Increasing the taxes on carried interest isn’t going to come close to balancing this budget anyway, so it might as well be a political move by the Dems. Not a very shrewd one though.
@20 (Mr. Awesome), the trend is your friend.
@24 Agreed!! It just really pisses me off. To quote Barney Frank… Its hard to swallow.
Although I think Barney was referring to something else.
maybe if these protesters were looking for a job and not buying shit with credit cards they could pay their mortgages
or if they were actually productive at work they wouldnt have been fired in the first place
i often contemplate moving to detroit working for $50/hour (which is about 5 times the amount the average IBD analyst makes per hour) and trading at night
@26 do it. You would have great medical coverage, a huge pension and could retire at 50 and still spend 20 years working some place else. This was actually a day of work for these assholes.
I bet most of these SEIU assholes didn’t even have a problem with their mortgages. They were sent on an errand by The Anointed One and they trespassed and congregated on private property while a young child was in the house. The police would not arrest anyone, they said they didn’t wan to excite the situation. Funny, they are union too.
So basically under Obama we have no rights anymore and he can sick his purple shirt thugs on anyone who he chooses to use as a pawn in his game.
@20 you always seem to blame everything on Obama and WS. Not that you’re completely wrong. Obama is pushing along a lot of crappy legislation. And yes, Obama received a lot of campaign support from some big banks they did so more to appease the guy who was obviously going to win (thanks to Palin), than wanting Obama there. If you took all of WS’s vote out of Obama’s victory, hell take all of NY’s electoral votes out, Obama still wins by a landslide. Would we even be better off with a walking corpse and what is essentially a functionally retarded pair of tits in office? You sound like the people who you seem to dislike…the whiny liberals who blame everything on someone else.
@28 if obama and his friends just shut the fuck up for two weeks i could make some money in shit other than the vix
this schmuck and his entitlement programs and other major “overhauls” he has planned are going to turn us into the countries now having all the problems
WHAT THE FUCK ARE YOU TALKNG ABOUT? I also blame the unions…
I am talking to members of WS. If this was a different forum i would address it appropriately. The fact is, yes no one state or industry got Obama elected. However if Obama was the only mistake (Shumer, Clinton, Spitzer, Cuomo, Gillibrand, Weiner,) Should I continue?
All of these “mistakes” are why we have NO ONE to fight for NYC and our only industry (WS). Obama was the icing on this. Do you realize how much money we stand to lose?
Now I blame Obama because this is his agenda. It is that simple. There is no one else to blame here. Unless you know something I don’t? Who is pulling the strings.
It’s not “crappy” ligislation. This is game changing, economy busting stuff. WAKE THE FUCK UP!!!
You Maniac! You and your birthday party with Rod Stewart! Ah, damn you Schwarzman! God damn you all to hell!
@30 you forgot to mention the beachwhale Jerrold Nadler. Fucking fat fuck ate chipotle 4x a day
How many Levins do you people elect to government every year? This, to me, seems to be the most relevant question.
@ Mr. Fulsome I stand by my comment. Take a nap.
- 13/not anybody else
Everyone– and I’m serious now– the bill’s going into reconciliation. Call your Congressman. Tell him what you do/don’t like. Tell him how whatever bats*** amendment just got stuck on by the Senator from Roadkill, KS or Dead Horse Jct., NV is actually going to hurt people IN HIS OWN DISTRICT. Point out that the six largest banks in this country employ twice as many people as there are active members of the UAW. IT MIGHT ACTUALLY HELP.
what bill?
Don’t worry @30/35/everyone. I was over at freerepublic and they’re all talking about this. Apparently Glen Beck is going to do a segment on it tonight and get the bill proposal shot down.
These hopey socialy crooks in Washington may know about lipstick on a pig but they’ve never seen a mamma grizzly mad!
Yeah, because the richest men in America SHOULD pay less tax than the people who scrub their toilets (all 56 of them!). Yeah, that’s real fair.
You remind me of the dukes living in Court (France, 1770ish). You’ll wind up the same way as them eventually.
Vote Kouwe in 2012!
@38 – You mean I get to bang my servants in the ass and crap on all the little folk for a few more decades before fleeing to England? Works for me. Or were you mixing up the dates of the French and American revolutions?
Whole Lotta Bitchin’ going on here. Other than spouting out “I don’t really wanna pay taxes” name one good reason why carried interest shouldn’t be taxed at a higher rate for GP’s.
And the first person who says that the talent will go elsewhere gets a swift kick to the sandy vagina.
@41 why should they get taxed at a higher rate? PE does this country a favor and makes companies more efficient. Who cares if these fat slobs lose their jobs along the way? I could go work for GM/Ford/Chrysler and get paid $50/hour to do some easy shit.
Having separate tax brackets is no different than legitimizing separate but equal. There is no justification for it other than its not fair etc… and any other deviation of that
I dont want to pay taxes and I’m doing something about it, I will be moving to Bermuda as soon as possible to escape Obama & Co. from taxing the shit out of my earnings, savings, and whatever else he can do to take money out of my pocket
The libs can bitch all they want about the financial industry bonuses but look at the deficits in NY & NJ, these states need us to get paid a shit ton so they can go about spending as they wish, without the bonuses which get taxed at a higher rate than the corporate effective rate, these governments will go bankrupt
so next time you hear about bonuses being paid, earnings being beat, etc… say thank you for allowing me to ride the MTA for just over 2 bucks and not 5
@37 not sure what you are inferring with the Glen Beck comment. Are you discounting my argument by insinuating I watch him?
Could i not say the same thing to you by saying you watch NBC/GE? I don’t understand the argument.
Are you saying Beck is a liar and his facts are false so I must be wrong? Or do you think Obama is actually the savior and we all should fork over our earnings to pay for other people’s lives thus you disagree with Beck?
As for you @38 I have no words to describe your idiocy. You have truly won the Darwin Award today for outstanding commentary. Congrats! Just curious, what time will you be signing over your paycheck to the local SEIU you clearly think they deserve it. I would really like to come watch.
Under this administration, the rules are changing at an alarmingly fast pace. Not only that, but things that seemed impossible a few years ago are now real. What does the future hold? I have no idea. How likely am I to continue my previous consumption patterns? Very unlikely. Result is the next decade of your lifetime will be slow growth, high inflation ending with the US as a weakened financial, economic power. As relates to carried interest, this bill is about real estate, oil and gas partnerships and much more than private equity/hedge funds/VCs. The worst part about it is that it amounts to a ~150% increase in taxes. You ask for revolution? It begins when you increase taxes at rates like that. I hope all you NYers step up for your own sake in the next election. Even if this one doesn’t effect you the next law will.
@44 We are (NYC) already effected but since people don’t see the effect like rain, they ignore what is truly going on.
NYC- Is broke, our Mayor is a self declared Duke who comes in a and out of consciousness depending on how egregious Obama is that day.
We have had our HomeLS budget cut, supposedly the largest terror trial is to be held here placing an even bigger target on our back not to mention we just had a terror attack.
Obama has rallied the largest unions in the nation against WS our life blood (the last lucrative industry in the nation). He is targeting income, your choice of food, our state’s ability to defend itself agains illegal immigration. He is shifting power from the people to the government. We no longer have a say.
Obama’s medical bill has been called a “NYC KILLER” by the Mayor and DEM governor. It is coming..
I am not sure what this city needs to wake up. Fires in the street? We already have the protests in the street and at people’s homes.
If I spoke Greek I would have signed off appropriately.
PE has a history of wrecking companies and losing investors’ money, so screw ‘em. Pay your taxes you useless crybabies!
Great article:
http://dealbook.blogs.nytimes.com/2010/05/20/another-view-in-defense-of-carried-interest/
@47 Oh good grief–how freaking stupid! For 95% of Americans a house is a place to live, not an investment. Of course it takes a VC (or was it PE?) guy to try to make this into some sort of populist issue. Not a great article.
@43. The translation would be that you’re a raving, emotionally unhinged idiot, some sort of strange, talking detritus that escaped the detection of the professional sanitation industry.
Your arguments are full of the usual myths, misinformation, and general ignorance that preoccupy those whose mental maturity and growth stopped somewhere in the vast cloud of sperm that unfortunately found no bridge too far.
This was quite plain in my post and I regret thinking the extreme and blatant sarcasm would be noticed and the proper inferences made. I take the blame, the responsibility, for this. For does one strike a child for wondering why the sky is blue? Does one kick a dog for trying to defend its master, or a tranny from shitting on the rug? No. That is simply their nature.
P.S. The sky is not falling. The pensions are pretty much screwed. Salary is $32 an hour, which, isn’t really much. Income is Income whether you’re doing PE or not. Stalin hasn’t returned from the dead and the laws and institutions of the country aren’t even left of center nor will they likely ever be (and Obama is a centrist). Unions are nearly powerless. Almost all major media is right of center. Finance and NYC is not nearly as important as you think it is, and, no, just because someone is poor does not always mean they are lazy.
These are all reasonably verifiable facts that you, due to the lack of ever reading a fucking history book, are completely ignorant of. This implies that these verbal pink socks that you call arguments exist only because it’s to someone elses advantage for them to be there. This, in turn, means that you are a dumb, ignorant, hateful cunt who, sadly, is being blatantly used and manipulated at probably every step of their life.
So, if you’ll excuse me, I am going to go drink heavily. Self-medication, can, indeed, be a virtue.
@49 You go drink that Kool aid. It makes people feel safer to assume all is well and nothing is changing. If that were so why does Beck have more viewers then ALL of the “major networks combined”? Why do only 40% of Americans agree with Obama’s policies? Why do 83% agree with the immigration law in Arizona? While Obama stands against it.
Why has every politician Obama has backed LOST HUGE?
Let me help you come out of that stupor. Its because America is actually centrist and Americans thought Obama was too and now we realize he is a left wing freak show hell bent on turning this country into Greece. he has been all his life. You might not read so maybe you aren’t aware but if you GOOGLE him and his various affiliations you will learn what I already know.
Now I can understand if Obama is on your side. I can understand your defending him they way you do, with such irrational fervor. Maybe you are a union guy and you don’t want to work more then your current hrs. Maybe you don’t give a shit how many hrs i have to work to pay your fucking salary or healthcare. That’s fine. I actually do care and since it’s my tax dollars you are counting on, lets agree you shut the fuck up and just say thank you. I’m not interested in your demands. I don’t need to make less for my family so you can make more. If you want to make more money GO FUCKING WORK GET ANOTHER JOB. That is what this country was built on. Not handouts, not union handshakes.
@49 you go read a fucking history book and you will see that muni/sovereign defaults are rare but still happen and that NYC was effectively bankrupt in 1975
and tell $32/hour is not a lot of money to the people who made the computer i am writing this on, see what kind of response you get
@52 I really think he is a union guy. You will never convince him of anything. “Usual mythes”? I mean, what I am talking about is damn near printed daily in the the paper.
Now you may not be a Beck fan and you don’t need to be but i will say this. hate him all you want, but its doesn’t mean his actual facts are wrong. So I don’t get the “misinformed, You watch FOX News” argument.
Frankly, its the other networks that leave out the other side of the story. Let’s take that protest at Bear’s house for instance. Did you see that story in the Times? Was it on NBC, ABC or CBS? No, it wasn’t even mentioned. NOT ONCE.
So is FOX bias for showing it, is Beck wrong for taking issue with it? Or are the other guys bias for not showing it? I guess its a personal call but i don’t see how saying someone watches FOX NEWS somehow makes them misinformed or following some kind of cult.
I would question why the other networks ignore certain stories and cover others. Why hide information to make Obama look good? I think if you watch news that cuts the story to follow someone’s agenda. Well that would make the viewers MISINFORMED.
I don’t own stock in GE so I don’t care what favors they get for holding back on certain information for Obama. I like the facts and you seem to agree.
FACT @49 is a shit for brains.
@49, why waste your time you whiny, needy bastard
See, this is the problem, outside of your general stupidity: you have no fucking perspective.
Feel free to start here:
http://www.politicalcompass.org/images/usprimaries_2008.png
http://www.politicalcompass.org/images/internationalchart.gif
Of course, if you bothered to read the news, you would know this. You would know that there are about 100 key issues on which most Democrats are right of center. You would know from the President’s appointments back from 2008 and that from his foreign policy decisions alone that he ain’t exactly rocking the boat. Or do you just focus on one or two domestic issues like a rabid fucking dog to come to your conclusions? Do you think I mentioned Beck and Palin by accident?
We have an empire to run here, you ignorant little shit. Do you really think politics comes into that? Do you even realize where all this fucking money comes from?
Then, of course, you can go check out how “this country” was built, to a significant degree, on unions and the labor movement, and one reason why we aren’t living in a complete shit hole:
http://en.wikipedia.org/wiki/Labor_history_of_the_United_States
From there you might stumble upon Debs so you can figure out what socialism actually means and from there how little power unions have now compared to the 20s, nevermind how little they had then.
You might stumble across the thousands of studies of the media and how much their reporting is impacted by the fact they are dependent on advertising income for 50-75% of their budget. Surely, as a finance person, you can understand that? Don’t worry, it doesn’t take effort—just Google it.
Likewise, any idiot knows domestic news is always biased in favor of the home country. Why the fuck do you think any person with half a brain on WS subscribes to the FT before the WSJ?
Sure, America is centrist. Centrist to the fucking moving average you genetic moron. For example: do you even realize why Justice Kennedy is considered liberal now while being considered center/right a couple decades ago? Do even realize what proportion of financial profits are due to simple legal changes since the 80s? Do you even know how the formulas for the damned basic economic statistics have changed since the 80s? Can you tell me 3 financial similarities between us and Rome, how interest rates fluctuated during the 1800s, or why people 8,000 fucking years ago used their front fucking door as collateral for loans? Can you tell me how the purchasing power and wage of the average american has changed since 1900 or how the basic economic models we use today relate to mathematics from the late 1800s?
No, you can’t. Because you have no fucking perspective.
The embarassing thing about this is that finance is by definition a study of history and perspective, and still you have absolutely no fucking clue.
-thoroughly and happily shitfaced
@54. Alcohol and amphetamines. Hope thats reasonable.
I generally dislike Obama’s policies, and hate all the liberal D-bags in Congress, but looking at this tax law change objectively it’s almost impossible to justify leaving it as it currently stands.
Capital gains tax rates on what is essentially management fee income defies logic (though, to be fair, so does a lot of the tax code).
tell me what PE firm flips companies in less than 12 months, if you find one look at how consistently they do this, flipping companies takes a long time
this is saying hey ws f you we want more of your income versus the regular investor who will still be taxed at 15%
most PE firms dont allocate their carried interest until they are profitable or some other metric that is along the same lines, again please tell any case where they are profitable within a year
@58 While you are correct that they are not generally turning the capital around in less than 12 months, this issue is really that the carried interest income is not from the investment of their own capital. The carried interest is essentially the manger’s fee for managing the capital. If the manager is also a partner then they would retain capital gain treatment on any investment income derived from the capital they contributed.
The carried interest portion is tantamount to a salary/bonus. Taxing that as capital gains simply does not make sense.
I’m as critical of the Dems/Obama/higher taxes as anyone, but it’s hard to get around the logic on this one.
WS firms paid massive contributions to Obama because some Jews, unlike myself, are complete masochists. Now we are all getting assfucked by a n@gger/cracker halfsie. Also, why do people say Michelle is beautiful? She is ugly as hell. She has fucked up bone structure.
- Splooge on your face
@60 Hasidic splooge, you got problems, scary problems – Conservative Jew
I work in PE and taxing carried interest as regular income is the right thing to do. The people on this board are just a bunch of entitled assholes who feel they deserve outsized pay and wildly favorable tax policy because they work hard.
A lot of other people work hard too and get no where near the rewards. Just because your boss made a fuck-ton of money in 2007 and got taxed at 15% doesn’t make it right for you to expect the same. It was wrong then and it is wrong now.
And for all you stupid fucks who argue that this somehow will destroy people’s incentive to invest you are idiots. You guys may lack ambition, but I’m still motivated as all hell to get that money and even if 39% is taxed away I’m still rich.
Hello. – And Bye