Tags: David Bonderman, Private Equity, taxes
I feel like this came out wrong:
The idea that capital gains treatment should only be available to those with money to invest would advance a policy that puts a higher value on financial contributions than vision, hard work and other forms of sweat equity.
That’s from Steve Judge, president of the Private Equity Growth Capital Council, and I think he just said “the idea that capital gains treatment should only be for gains to capital is unfair to people who earn their income from labor,” and, I mean, that’s certainly a position you can have, but … I dunno, that’s not how I’d argue for taxing my labor at a lower rate than other people’s labor?1
It’s from this very funny FT article about the incidence of changes to private-equity taxation. Basically you can just about imagine, if you have an overactive imagination, that a second Obama term would bring changes to the tax treatment of carried interest so that the 20 in private equity’s 2-and-20 would be taxed as ordinary income (35%) instead of capital gains (15%). As with any tax on a business it’s worth asking who actually pays it, and one possible answer is “well, if we amend our partnership agreements to require LPs to gross up managers for any change in the tax code, then the LPs will pay it, won’t they.” That answer turns out to be (1) something that people have actually tried and (2) wrong: Read more »
Tags: Chesapeake Energy, taxes
If you were at, say, Range Resources, wouldn’t you be SO PISSED at Chesapeake? Uniquely in modern memory, every media report during Chesapeake’s meltdown has had immediate and dire results. Aubrey’s a bit of a scoundrel? Strip him of his chairmanship. His founder participation program creates conflicts of interest? Terminate it. There was maybe a bit of collusion in bidding on some mineral leases? Why hello DOJ antitrust probe.
Bloomberg dug up another mini outrage today with its discovery that Chesapeake doesn’t pay taxes much, mostly because it spends much much more money than it takes in:
Chesapeake Energy Corp. (CHK) made $5.5 billion in pretax profits since its founding more than two decades ago. So far, the second-largest U.S. natural-gas producer has paid income taxes on almost none of it.
Chesapeake paid $53 million over its 23-year history, or about 1 percent of the cumulative pretax profits during that period, data compiled by Bloomberg show. … The biggest tax break, for Chesapeake and other independent U.S. oil and gas companies, is a rule that’s been around since at least 1916 that allows some producers to expense “intangible drilling costs.” Companies can count most of the cost of boring a new well against their taxes at the time the money’s spent, rather than recognizing it over several years. That allows them to effectively put off tax payments, even during years when they turn a profit.
This is a story about the mismatch between tax and GAAP accounting, which is a story that is as old as time; one question you could ask is, which is right? Read more »
Tags: Harbinger Capital, Harbinger Capital Partners, hedge fund managers, Phil Falcone, taxes, that's gonna leave a mark, Wilbur Falcone
Remember the time Harbinger Capital Partners founder Phil Falcone was a little short on cash, and decided to “borrow” $113 million from a fund in which redemptions had been suspended in order to pay personal taxes, which he later begrudgingly apologized for? Unfortunately for Big P, the SEC does. (The regulator also recalls he time he allegedly played favorites with Goldman and allegedly manipulated some markets.) Read more »
Tags: election 2012, Mitt Romney, Newt Gingrich, politics, Private Equity, taxes
If you’re into this sort of thing you can go read Mitt Romney’s tax returns and learn (on page 5 of the 2011 return) that he is in the “independent artists, writers, performers” business, which seems about right. (But which one?) You can also learn that he’s doing okay, financially-wise, and some more specific stuff; tantalizingly, you can’t get a good picture of his returns on assets because his financial disclosure forms are so meaninglessly bucketed. Most crucially, you can learn that he paid about a 15% tax rate on his take last year. There is a lot you can think about this. Some of it revolves around the badness of taxing capital gains at a lower rate than labor income, which, whatever, not my beat. Some of it revolves around the badness of taxing private equity labor income as capital gains, which, I mean, I’m sympathetic to, but also not my beat, but in any case this income is actually capital gains. Like, Mitt wasn’t working at Bain Capital last year. He was just sitting around, doing his “independent artist/writer/performer” thing, collecting money from the other money that he got 20 years ago. That’s what capital gains is. Anyway.
If you’re really into this sort of thing you can also go read Newt Gingrich’s tax return, but you won’t, because the numbers on it are smaller and where’s the fun in that? But USA Today of all people actually went and read it and they found … maybe tax fraud? That was unexpected:
Read more »
Tags: cats, Claudius Ptolemy, Congress, Derivatives, Feline Pride, taxes
Sometimes it’s useful to be reminded that not all financial structuring is designed to get around capital requirements or defraud customers. Some is designed to get around taxes and defraud the treasury! One group of people who like to think about that kind of thing is the Congressional Joint Committee on Taxation, who took some time out from shouting about payroll taxes yesterday to have a geeky hearing about the state of financial instrument taxation. Short version is, they’re not all that happy about it.
The JCT staff generally say pretty smart stuff about tax policy, and they get that shit is fucked up and bullshit. Or as they put it more diplomatically:
The timing, character, and source rules apply differently to (and are sometimes uncertain for) equity, debt, options, forward contracts, and notional principal contracts. These five basic instruments can be combined in various ways to replicate the economic returns of any underlying asset. … The flexibility of financial instruments also creates great difficulties in the taxation of financial instruments. This report provides examples of taxpayers’ uses of financial instruments to achieve desired timing, character, and source outcomes and describes how the tax laws have or have not addressed this tax planning.
There are two useful takeaways here. One is kind of weird: there are a bunch of fairly basic things (exchange-traded notes, CDS) where nobody – not the IRS, not the JCT, nobody – knows how they’re supposed to be taxed. That … seems like a bad thing. And, I’m going to guess, not so much the fault of evil financial innovators.
The second takeaway, which is related but more satisfying to fulminate about, is that evil financial innovators can mix and match stuff until they get any tax result they want: Read more »
Tags: Denmark, Fat, hedge fund managers, ideas, Julian Robertson, taxes, The Obesity Czar, Tiger Management
As you may have heard, over the weekend, Denmark introduced a tax on fat. The measure is aimed at “increasing the average life expectancy of Danes” but obviously it’ll make the country a little extra coin, too. Great for them, not so great for hedge fund manager Julian Robertson, who had to sit at home steaming over the fact that his idea had been stolen. For those who supposedly don’t remember what we’re talking about, perhaps this quote will jog your memory?
“I would love to be the Obesity Czar.” Read more »
Tags: Buffett Rule, George Soros, hedge fund managers, taxes, Warren Buffett, wholehearted endorsements
“As one of the people who will be directly affected by the proposed new rules, let me say that I wholeheartedly endorse them,” says George Soros of carried interest and Obama’s proposed Buffett rule, which would force those making more than $1 million to pay at least as much federal income and payroll taxes as those who make less. [AR]