Whats Fair When it Comes to Taxes?

[saden1]

Originally Posted by mlmpetert

Im honestly not trying to be a dick, but i dont understand your comment. Forget carried interest for a minute thats a different issue, the author is speaking from a boarded view on long term capital gains in general.

Ive read before the reason Capital Gains are taxed at a lower rate is because they have effectively already been taxed. Non-speculative long term equity ownership can/should be thought of as ownership on a firms future profits. Long term increases in the price of a stock are primarily driven by earnings. Speculative or short term equity ownership is not thought as an ownership of future profits and that is why its taxed at higher ordinary income rates.

Since the firm is already taxed at the corporate rate taxing profits made from capital gains is effectively double taxation. This is from the taxman himself:



Corporations

I'm sure you're not trying to be a dick but the business structure of a private equity firm is not that of a Corporation. Typically they are structured as limited liability partnership which means the company (note I didn't say Corporation) doesn't take sole proprietorship of the income/profits and thus avoids the tax liability of a corporation. In an equity firm there is no 35% tax rate to pay much less 1%,

That is to say all income is passed on to the partners and if they don't hold the assets long term (more than a year) then each partner's take home cut of the profits would be counted as ordinary income (taxable at 35% personal income tax bracket). Of course fat cats like Romeny hold their profits for more than a year so they only end up paying the capital gains rate of 15%.

You think these a-holes would be in the game if they were paying 35% plus an additional 15% in addition to the prospect of failed investments? If it don't make a dolla' it don't make sense but neither is having Romney only pay 15% while the rest of us are look at paying a much higher rate.