Which Republican will defend Hedge fund tax exemptions

[Sactowndog]

Like I said before, carried interest affects other people, which is why I am a bit ambivalent simply eliminating it.

Is it simply black and white or are their shades of gray that would prevent abuse but allow appropriate use of it.

 

[Sactowndog]

Like I said before, carried interest affects other people, which is why I am a bit ambivalent simply eliminating it.

Carried Interest Tax Increase: Bad for Main Street |

Real estate is no different than any other general partnership. You are a rich guy who wants to invest in real estate. I am a real estate professional. I invest your money for you. You pay me a performance fee. That fee should be taxed at the same rate as all other economic activity which is fee based.

There is no reason to believe that there would be any appreciable decline in investment, at least as how I understand it. In the real estate general partnerships (GP) that I have been exposed to, the limited partners (LPs) supply most of the capital. The manager of the GP may supply a little bit of the capital. The GP has an investment period, usually 3 to 5 years, the capital is called from LPs and is invested by the manager during the investment period. Each GP has a shelf life, usually up to 10 years with extensions of a few extra years if need be. The GP is expected to wind down during that time as investments are sold off. Returns are distributed to the manager of the GP and the LPs. Carry is paid off the profits generated in the GP after the profits are generated. So there is no reason to think that this inhibits capital formation since most of the capital is supplied by the LPs, not the manager of the GP, and it is paid after the activity has occurred. It is a performance-fee based business, no different than any other fee-based business. If the manager of the GP supplies a significant amount of his own capital to the GP, then that capital should be taxed at the rate of capital gains. But the carry the manager generates on the capital should be taxed as any other income.

In fairness, a few years ago, the Democrats tried to tax the capital supplied by the manager into the GP as ordinary income. Well, that's bullshit too. We shouldn't be segregating capital by profession. Capital should be taxed at the rate for capital gains. Services, including money management services, should be taxed at the ordinary rate of income.

Seems reasonable. Does the General partner assume any downside risk beyond the risk associated with their owned capital? Or is all the risk passed to the limited partners.

 

[Quantum Windbag]

Like I said before, carried interest affects other people, which is why I am a bit ambivalent simply eliminating it.

Carried Interest Tax Increase: Bad for Main Street |

Real estate is no different than any other general partnership. You are a rich guy who wants to invest in real estate. I am a real estate professional. I invest your money for you. You pay me a performance fee. That fee should be taxed at the same rate as all other economic activity which is fee based.

There is no reason to believe that there would be any appreciable decline in investment, at least as how I understand it. In the real estate general partnerships (GP) that I have been exposed to, the limited partners (LPs) supply most of the capital. The manager of the GP may supply a little bit of the capital. The GP has an investment period, usually 3 to 5 years, the capital is called from LPs and is invested by the manager during the investment period. Each GP has a shelf life, usually up to 10 years with extensions of a few extra years if need be. The GP is expected to wind down during that time as investments are sold off. Returns are distributed to the manager of the GP and the LPs. Carry is paid off the profits generated in the GP after the profits are generated. So there is no reason to think that this inhibits capital formation since most of the capital is supplied by the LPs, not the manager of the GP, and it is paid after the activity has occurred. It is a performance-fee based business, no different than any other fee-based business. If the manager of the GP supplies a significant amount of his own capital to the GP, then that capital should be taxed at the rate of capital gains. But the carry the manager generates on the capital should be taxed as any other income.

In fairness, a few years ago, the Democrats tried to tax the capital supplied by the manager into the GP as ordinary income. Well, that's bullshit too. We shouldn't be segregating capital by profession. Capital should be taxed at the rate for capital gains. Services, including money management services, should be taxed at the ordinary rate of income.

I am not arguing with you, I am just trying to understand everything involved. A few days ago I thought it was an entirely stupid idea, I am making progress.

 

[editec]

What risk is the hedge fund managers taking?

None...they are risking other people's money.

To them this cash is payment for services, and NOT profit on their investment.

They made no investment. They took no risk.

 

[Toro]

Like I said before, carried interest affects other people, which is why I am a bit ambivalent simply eliminating it.

Carried Interest Tax Increase: Bad for Main Street |

Real estate is no different than any other general partnership. You are a rich guy who wants to invest in real estate. I am a real estate professional. I invest your money for you. You pay me a performance fee. That fee should be taxed at the same rate as all other economic activity which is fee based.

There is no reason to believe that there would be any appreciable decline in investment, at least as how I understand it. In the real estate general partnerships (GP) that I have been exposed to, the limited partners (LPs) supply most of the capital. The manager of the GP may supply a little bit of the capital. The GP has an investment period, usually 3 to 5 years, the capital is called from LPs and is invested by the manager during the investment period. Each GP has a shelf life, usually up to 10 years with extensions of a few extra years if need be. The GP is expected to wind down during that time as investments are sold off. Returns are distributed to the manager of the GP and the LPs. Carry is paid off the profits generated in the GP after the profits are generated. So there is no reason to think that this inhibits capital formation since most of the capital is supplied by the LPs, not the manager of the GP, and it is paid after the activity has occurred. It is a performance-fee based business, no different than any other fee-based business. If the manager of the GP supplies a significant amount of his own capital to the GP, then that capital should be taxed at the rate of capital gains. But the carry the manager generates on the capital should be taxed as any other income.

In fairness, a few years ago, the Democrats tried to tax the capital supplied by the manager into the GP as ordinary income. Well, that's bullshit too. We shouldn't be segregating capital by profession. Capital should be taxed at the rate for capital gains. Services, including money management services, should be taxed at the ordinary rate of income.

Seems reasonable. Does the General partner assume any downside risk beyond the risk associated with their owned capital? Or is all the risk passed to the limited partners.

The GP assumes business risk. But that is no different than any other businessperson in any other industry who assumes business risk.

 

[Sactowndog]

The other argument is that tax on capital gains is essentially a tax on savings. Savings are the capital stock which funds the productive capacity of the nation. Taxing savings decreases the capital stock of the nation.

And this is the fundamental point I am saying is no longer true. National boundries no longer hold for savings as investors chose to invest globally. So having a lower capital gains tax does not impact the country. In fact, countries with a low capital gains tax and high income taxes will lose in attracting capital investment when compared with countries who have a low corporate income tax and high capital gains rate.

The ideal for the investor is to live in a country with a low capital gains rate and to invest in a country with a low corporate income tax.

Hey Toro and Quantum I hope you will adress this point. This isn't a left or right thing as we can endlessly argue where the individual rates should be and how progressive they should be.

But I do think this is a fundamental paradigm shift that significantly affects how we structure our tax code relative to the economy and it ability to attact or hold investment against other competing economies from Asia.