Skip to comments.Carlyle Group, Bain Capital, And The Tax Treatment Of 'The Carry'
Posted on 01/13/2012 1:51:50 AM PST by Cincinatus' Wife
The on-again, off-again battle over how to tax the compensation of private equity managers may be on again, thanks to the confluence of two seemingly unrelated events.
The first is the controversy over the role of Bain Capital, the investment partnership whose founders included Republican presidential hopeful Mitt Romney. The second is the disclosure by another firm, The Carlyle Group, of how its top executives are compensated.
Both have heightened the focus on what these outfits do and how they are taxed. Bain and Romney, of course, have come under withering criticism from Newt Gingrich and Rick Perry, who allege the firms investment strategy has led to reams of pink slips at companies it acquired.
That story is much more complicated than Romneys opponents suggest. Nonetheless, it has lots of people thinking about what private equity does.
Also this week, Carlyle disclosed its executive compensation in some detail, providing a rare glimpse into how investment firm managers are paid. Combined with the Bain flap, it will surely reopen the five-year old debate over the special tax treatment these partnerships receive through a mechanism known as carried interest or, in short, the carry.
The carry allows general partners in investment deals to receive compensation in the form of tax-advantaged capital gains, which are taxed at 15 percent, rather than as salary, which would be taxed as ordinary income with a top rate of 35 percent. This happens because the managers are paid with a fee (up to 2 percent) plus 20 percent or more of their investors profits. Those profits are taxed as capital gains even though the general partners may have little or no money of their own at risk in the deal.
Carlyles disclosure opens a small window into how this works....
(Excerpt) Read more at forbes.com ...
The arrangement allowed Mr. Romney to pursue his career in public life while enjoying much of the financial upside of being a Bain partner as the company grew into a global investing behemoth.
In the process, Bain continued to buy and restructure companies, potentially leaving Mr. Romney exposed to further criticism that he has grown wealthier over the last decade partly as a result of layoffs. Moreover, much of his income from the arrangement has probably qualified for a lower tax rate than ordinary income under a tax provision favorable to hedge fund and private equity managers, which has become a point of contention in the battle over economic inequality.
An examination of Mr. Romneys public financial disclosures, as well as interviews with former Bain partners, business associates and counselors to his campaign, reveals the extent of his financial relationship with Bain Capital and how it has allowed him to continue amassing a personal fortune while building a political career."......
Hi CW :-)
Isn’t it just heartbreaking to see a scoundrel like Romney besting a man like Perry :-(
Romney is a man with a faulty moral compass. God help us.
Nov. 13, 2011: Pelosi fires back at 60 Minutes report on soft corruption
Pelosi and her husband participated in an initial public offering of Visa in 2008, according to CBS. They bought 5,000 shares at the initial price of $44; two days later, shares were trading at $64, CBS said........... Source
Pelosi Bashes Catholics: 'They Have This Conscience Thing'... After having some of her behind the scenes shenanigans exposed, Nancy Pelosi has turned to her friends in the MSM to help her with damage control. The effect is something akin to watching what scrambles out after you overturn a large rock.
Pelosi sought to defend herself from allegations that she and her husband made millions from insider trading in what the Washington Post calls a wide ranging interview
November 16, 2011
Dear Leader Pelosi,
After reading about House Minority Whip Steny Hoyers outburst over my Overhauling Washington plan, I wonder if his obstructionism reflects your own opposition and that of the Democratic Caucus to urgent reforms the American people so vehemently demand.
After increasing the debt by $4 trillion in less than three years, no one can believe that Americans are satisfied with business as usual, and that a permanent political class in Washington can get us out of the mess you and your colleagues have created.
A part-time Congress with half the pay would still make $38,000 a year more than the average American family. Do you truly oppose lawmakers spending more time in their districts? Is it so important for the Washington power brokers to build their fiefdoms of influence, including providing bailouts to Wall Street while businesses on Main Street are being boarded up every day?
Here is the fundamental question: do you believe Washington is broken? Before answering that question, consider these facts:
1) the Washington Metro area is now the most affluent metropolitan area in the country because lobbyists, contractors, elected officials and bureaucrats have been insulated from the economic ruin prevalent in the private sector;
2) Congressional office budgets have doubled since 2000 while employers all across America are laying off workers;
3) Our nations total debt is nearing the size of our nations economy, increasing our dependence on competitors like China;
4) The number of Americans out of work has increased by more than two million since January 2009, despite the massive stimulus package Democratic leaders promised would revive the economy, and;
5) on top of the job-killing spending policies of the previous Congress, employers are faced with a staggering $1.1 trillion in costs related to federal regulatory compliance.
Do you truly believe the answer to massive debt, over-regulation and bloated big-government policies is to continue to protect the status quo, which enriches and empowers Washington insiders at the expense of the American People?
My plan would overhaul Washington, eliminating certain agencies and reducing the size and scope of others. It will force Congress to make the tough decisions to balance the budget or require a further reduction in their pay. It would end lifetime appointments to future appointees to the federal bench. I dont want to tinker around the edges when the American People demand a complete overhaul of Washington.
Let me conclude with an invitation: I am in Washington Monday and would love to engage you in a public debate about my Overhaul Washington plan versus the congressional status quo. I think it would be a tremendous service to the American public to see a public airing of these differences. Let the people decide. If Monday doesnt work, perhaps we could find a time in Iowa over the course of the next month to discuss these issues in front of the people of Americas heartland.
Should you choose not to respond or engage in such a healthy discussion, I will take it to mean you will continue your obstructionist ways in the face of much needed Washington reform.
Governor of Texas
Romneys Troubling Appointments (Mitt's environmental policy team now works for Obama) ......."Significantly, two of Romneys appointments have how found a home in the Obama White House.....Gina McCarthy, the chief EPA clean air regulator,.......Another Romney environmental adviser in the effort to regulate greenhouse gases is now Obamas Director of Science and Technology Policy, John Holdren."........
Romneys Advisers Met With Obama to Help Craft Obamacare Three of Mitt Romneys advisers went to the White House at least a dozen times in 2009 to consult on the former Massachusetts governors health care plan that President Obama used as a model for his initiative -- now a federal law that all the Republican presidential candidates want to repeal."....
The Democratic National Committee has already established a YouTube channel called "Which Mitt" which highlights his Mitt-flops."..................Source
The spot's most striking image is a tumbleweed blowing along a deserted Texas highway. That's rich. It's intended to create the impression that Rick Perry's Texas is something of a depressed ghost town. Nothing could be further from the truth. Since the recession began, desperate job seekers have flocked to Texas at a clip of roughly 1,000 people per day. And they're finding work, too. Despite a huge population influx and a bruising national recession, Texas' unemployment rate remains below the national average. How remarkable has the Lone Star State's economic performance been? Read this Political Math analysis (written by a self-professed non Perry supporter), and marvel. One telling data point:
Romney: "That plant kills people!"
...according to his standards, Romney himself used to be a radical environmentalist who supported clean energy policy and opposed a pollution-backed economy. Back in 2005, Romney told the Boston Globe he was convinced that cap and trade was good business. It was his administration, in fact, that helped guide the development of the Regional Greenhouse Gas Initiative, a cap and trade system in the Northeastern U.S. that has raised $860 million for energy efficiency and renewable energy programs.
In 2003, Romney fought to protect public health by supporting environmental controls on a Massachusetts coal plant that was responsible for dozens of premature deaths and 14,400 asthma attacks each year, according the Harvard School of Public Health. Announcing new regulations on the coal pollution, Romney said that he would not create jobs or hold jobs that kill people:
I will not create jobs or hold jobs that kill people. And that plant kills people and PG&E has been given a notice to have it cleaned up by 2004 and they have thumbed their nose at the people of Massachusetts and Salem Harbor by not cleaning it up on time. So were saying, clean it up on time, do the job in the community, invest in cleaning technology.
One has to wonder where the old Romney went. According to Seth Kaplan of the Boston-based Conservation Law Foundation, the old Romney disappeared while he was still governor of Massachusetts, posturing for the presidential election in 2007.
You could see the flip starting to happen then whether it was directly related to his running for president, you cant say for sure. But they happened at the exact same time,... Source _________________________________________
Rick Perry Campaign: "Romney's Remedy" Ad ********* ROMNEYCare = OBAMACare
The Political Math guy is a Romney supporter in wait for it... UTAH!
Sounds like he’s more interested in the truth than in Romney’s lies.
The Vetoes of Rick Perry - As Texas governor, he broke records and earned conservative support.
Rick Perry Scares the Media & Democrats to Death GOP consultant Mark McKinnon says that the editor of a major newspaper told him, "We plan to declare war on Rick Perry and do all in our power to crush him."
Mr. McKinnon was outraged. "No pretense of integrity, professionalism or of unbiased news gathering," he wrote in Investors' Business Daily.
But I doubt he was surprised. This is what the "mainstream" media did to Sarah Palin in 2008, and what likely is in store for anyone Republicans nominate.
But liberals will go after the Texas governor with special venom because he is anti- intellectual, prays in public, takes the Constitution seriously and sometimes carries a handgun, Walter Shapiro wrote in The New Republic.
"It's almost as if Perry's political persona was constructed by bundling together all the fears and phantoms in the left-wing anxiety closet." he said.
the special tax treatment these partnerships receive through a mechanism known as carried interest or, in short, the carry.
Sure would be interesting to know who in Congress got that in! Just as a matter of historical curiosity -- sounds like a long-standing policy, but the history would probably be revealing.
“Mitt Romney said he will not release his tax returns if he wins the Republican nomination for president, a rare move for a candidate.
When asked if he would, Romney, in an unaired segment of an interview with MSNBCs Chuck Todd, said that he doesnt intend to release the returns.
I doubt it. I will provide all the financial info, which is an extraordinary pile of documents which show investments and so forth, he said, according to video provided by NBC.
When Todd pointed out that Romney had asked Sen. Ted Kennedy (D-Mass.) to release his returns during their 1994 race, Romney reiterated his remarks.
Never say never but I dont intend to do so, he said.
President Obamas campaign blasted Romneys statement.
By declaring that, if nominated, he would not release his income tax returns, Mitt Romney is defying a practice to which every party nominee, Republican and Democrat, has adhered for decades, said Obama spokesman Ben LaBolt. Even his father, George Romney, disclosed his tax returns when he ran for president in 1968. Why does Gov. Romney feel like he can play by a different set of rules? What is it that he doesnt want the American people to...”
So it is somewhat ironic that Romneys former firm, Bain & Company, was among the private consulting firms that advised the Obama auto bailout team.
And what did Bain recommend? Cutting dealerships."....
Mitt Romney REFUSES to release his tax returns.
[snip] Dynamic Tax Score for RickPerry.org, Inc. Proposal:
Based on the higher GDP estimates forecast by the dynamic scoring exercise, the Perry proposal will not only lead to an increase in overall economic activity and jobs, but will also lead to higher federal revenues in the long term. In fact, the analysis suggests that revenues could be as much as $406.8 billion higher than under the static model by 2020, and could be as high as 19.5 percent of GDP.
The dynamic score of the proposal suggests that lower flatter taxes could generate both more revenue than the current tax code, and significantly more economic growth over time. With increasing demands on the Federal government from growing entitlements, higher pension expenses and interest on the debt, it will be necessary to increase the size of the economy and the tax base in order to generate significantly higher revenues. Table 7 shows how the Perry proposals would do this over a seven year period. [snip] Tax Proposal Score PDF
‘Why does Gov. Romney feel like he can play by a different set of rules? What is it that he doesnt want the American people to...
If Romney is smart, he will counter soetoro/obama/soebarkah with this:
‘I learn from obama, the master at playing by a different set of rules, especially anti-constitution rules. I learn from obama, the master at hinding from the American people his identity and birth status which he doesn’t want known.’
If Romney is brave enough to challenge the usurper this way, he has my vote!
Then again, his current standing at 5% in SC and 3.5% in FL may make his criticism irrelevant.
Texas Employment Update!
The case for Perrys venture capitalismTheres a big difference between the Texas and statist approaches - There has been a lot of debate about Gov. Rick Perrys economic development funds. The criticism centers on the idea that the Texans funds create a Solyndra problem for him, that by investing in businesses that bring jobs to the state, Mr. Perry has the same job-creation approach President Obama displayed in backing federal loans to a solar-energy firm.
Equating the two men in this way provides a convenient symmetry, but its also a false comparison that misses why many free marketers are comfortable with Gov. Perry even while critical of Solyndra.
This is an article about carried interest, which is a certain partner — usually a working partner — to get a disproportionately large share of the profit from a venture. It is not unusual and has been around since at least the 70s. If the venture throws off capital gain income, the carry partners get capital gain like anyone else. This was never controversial when Romney did it. There was a move to tax carry like ordinary income in the Dem controlled Congress but they didn’t do it because their supporters vetoed it. Obama didn’t push it because he gets Wall Street money too. You can argue that it should be ordinary income but until it is, there is nothing wrong with taking it as compensation. Especially since it is putting your compensation at risk (imagine not getting paid unless you were successful at a project). This is a bogus line of attack on Romney.
Everyone is just getting a good look at the entire picture.
Bain did at least prat of what it did on our dime.
Chris Cavarretta, of Stratham, New Hampshire, said his fellow Mormon friend met Romney last week at a campaign stop and told him to “choose the right”—a popular LDS slogan similar to “What would Jesus do?”
“His eyes lit up, and he said, ‘Yes, always.’” ..
Bain Capital is part of the K-Street to Wall Street “scratch my back and I’ll scratch yours” culture that has become corrupted.
Free market capitalism is the ticket to a strong, free society, but the K-Street-Wall Street cousins have become too cozy.
Why is Mitt Romney against releasing his tax returns?
Your point is?
Imagine that Mormon slogan coming out of Obama's mouth during a "Romney-Obama" debate.
“A previous story incorrectly reported that Mitt Romney’s former firm, Bain & Co., was part of a team of consulting companies that advised President Barack Obama on a decision to shutter car dealerships during the auto bailout.
Bain & Co. said it has no connection to the “Bain Consulting” firm referenced in government documents.”