Can anyone explain why the “Carried Interest” provision is a good thing?

[Seymour Flops]

I know little about Carried Interest. From what I gather, it is not more accurate a term than calling the bill the Senate just passed, the “Inflation Reduction Act.”

As I understand it, hedge fund managers can be paid based on the performance of their funds. They often get twenty percent of the profits the fund generates, even though they put no money at risk. I’m not saying that’s a bad deal for investors, necessarily. If the investors get 75% and 5% goes to administrative costs (hypothetically), then 75% can be quite a lot of money if the fund was managed well.

I don’t dispute that fund managers should be paid for their skills. But since they are being paid for their skills, why should they be taxed at a lower interest rate than surgeons, or artists, or engineers?

They are taxed at the Capital Gains Tax rate, which is lower than income tax rates. The idea is to encourage risk taking among investors. But fund managers are not investors, they are managers.

Maybe I’m wrong. If there is something I’m missing, please enlighten me.

 

[Rambunctious]

If you are a hedge fund investor its a windfall.... They are tossing gold coins in their beds today thanks to their friends the dems....

 

[Moonglow]

If you are a hedge fund investor its a windfall.... They are tossing gold coins in their beds today thanks to their friends the dems....

Sinema anyway.

 

[Rambunctious]

Almost everyone on the democrat party's list of evil rich entities are making bank with this bill...

 

[Rambunctious]

From wall street to the insurance industry to China all are going to get rich on this bill... and they all have the dems to thank for it... nothing in this bill benefits the average American... in fact its just the opposite....

 

[1srelluc]

From wall street to the insurance industry to China all are going to get rich on this bill... and they all have the dems to thank for it... nothing in this bill benefits the average American... in fact its just the opposite....

Well that's sorta what dems do.

 

[Dekster]

I know little about Carried Interest. From what I gather, it is not more accurate a term than calling the bill the Senate just passed, the “Inflation Reduction Act.”

As I understand it, hedge fund managers can be paid based on the performance of their funds. They often get twenty percent of the profits the fund generates, even though they put no money at risk. I’m not saying that’s a bad deal for investors, necessarily. If the investors get 75% and 5% goes to administrative costs (hypothetically), then 75% can be quite a lot of money if the fund was managed well.

I don’t dispute that fund managers should be paid for their skills. But since they are being paid for their skills, why should they be taxed at a lower interest rate than surgeons, or artists, or engineers?

They are taxed at the Capital Gains Tax rate, which is lower than income tax rates. The idea is to encourage risk taking among investors. But fund managers are not investors, they are managers.

Maybe I’m wrong. If there is something I’m missing, please enlighten me.

Being the one who saves it gets you a lot of money apparently for your campaign. Other than that, IDK.

 

[jwoodie]

I know little about Carried Interest. From what I gather, it is not more accurate a term than calling the bill the Senate just passed, the “Inflation Reduction Act.”

As I understand it, hedge fund managers can be paid based on the performance of their funds. They often get twenty percent of the profits the fund generates, even though they put no money at risk. I’m not saying that’s a bad deal for investors, necessarily. If the investors get 75% and 5% goes to administrative costs (hypothetically), then 75% can be quite a lot of money if the fund was managed well.

I don’t dispute that fund managers should be paid for their skills. But since they are being paid for their skills, why should they be taxed at a lower interest rate than surgeons, or artists, or engineers?

They are taxed at the Capital Gains Tax rate, which is lower than income tax rates. The idea is to encourage risk taking among investors. But fund managers are not investors, they are managers.

Maybe I’m wrong. If there is something I’m missing, please enlighten me.

Another way Carried Interest works is when someone puts together a deal (with other peoples' money) and is paid with stock from a new company that is formed. That person has 3-5 years to sell/value the stock and then report it as a Capital Gain at that time. This not only lowers the tax rate, but also defers when the taxes are due. On the other hand, it would be difficult to value and tax the effort that person made while putting together a deal that might go bust. I don't know of a better solution. Any ideas?

 

[task0778]

Let's say you have $1,000 to invest. You decide to enter into a contract with an investment manager in which he will be paid a certain fixed percentage of your investment, and he has to pay regular income tax on that amount cuz it's fixed income and he keeps that money sorta like a salary for his services. BUT - there is a side deal: he gets to keep a certain % of however much money he makes for you on your investment. So, for your $1,000 he managed to increase your investment by $200 to $1,200, AND under the terms of your deal he gets to keep let's say 5% of that $200, which is $10. He gets taxed on that $10 at the investment rate, which is 20% instead of whatever his normal income tax that may be as high as 37% or whatever the current top income tax rate is. And that $10 is known as carried interest.

That $10 incentivizes him/her to make the best possible investments for you. It's not hidden, and you already know about it ahead of time and you can check around for how much each investment manager will charge you. There is a reason why investment income is taxed at a lower rate that ordinary income, basically you are incentivizing investing and as a result greater innovation and economic growth. And that carried interest is no different, if you reduce the incentive then you de facto also reduce the incentive to make better or riskier investments.

 

[PoliticalChic]

I know little about Carried Interest. From what I gather, it is not more accurate a term than calling the bill the Senate just passed, the “Inflation Reduction Act.”

As I understand it, hedge fund managers can be paid based on the performance of their funds. They often get twenty percent of the profits the fund generates, even though they put no money at risk. I’m not saying that’s a bad deal for investors, necessarily. If the investors get 75% and 5% goes to administrative costs (hypothetically), then 75% can be quite a lot of money if the fund was managed well.

I don’t dispute that fund managers should be paid for their skills. But since they are being paid for their skills, why should they be taxed at a lower interest rate than surgeons, or artists, or engineers?

They are taxed at the Capital Gains Tax rate, which is lower than income tax rates. The idea is to encourage risk taking among investors. But fund managers are not investors, they are managers.

Maybe I’m wrong. If there is something I’m missing, please enlighten me.

While Manchin got $billion for his wife's enterprises, Sinema of Arizona got a pay-off as well.

Her state has lots of hedge-fund managers.....and they get a very special break on their taxes.

It's called the "Carried Interest Loophole."

While taxpayers are generally charged 37% by the thieves....er, government.......those who make a stock profit get a 20% capital gains charge.
Hedge fund managers get to pay only the 20% charge even though they didn't get their income from stock profits.


This gift to the managers is a $19 billion cost to the government....but since the hedge fund guys give Sinema lots of donations, she needs to support the loophole.
The original Democrat bill cut out that loophole.
Sinema held out until they put it back.


She can claim the original bill would increase inflation......but the one she is now supporting, does the same.