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Carried Interest Is Back in the Headlines. Why It’s Not Going Away.

Business

Carried Interest Is Back in the Headlines. Why It’s Not Going Away.

Published

3 years ago

on

August 6, 2022

By

Doni Glover

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For years, Democrats and even some Republicans such as former President Donald J. Trump have called for closing the so-called carried interest loophole that allows wealthy hedge fund managers and private equity executives to pay lower tax rates than entry-level employees.

Those efforts have always failed to make a big dent in the loophole — and the latest proposal to do so also faltered this week. Senate leaders announced on Thursday that they had agreed to drop a modest change to the tax provision in order to secure the vote of Senator Kyrsten Sinema, Democrat of Arizona, and ensure passage of their Inflation Reduction Act, a wide-ranging climate, health care and tax bill.

An agreement reached last week between Senator Chuck Schumer, the majority leader, and Senator Joe Manchin III, Democrat of West Virginia, would have taken a small step in the direction of narrowing carried interest tax treatment. However, it would not have eliminated the loophole entirely and could still have allowed rich business executives to have smaller tax bills than their secretaries, a criticism lobbed by the investor Warren E. Buffett, who has long argued against the preferential tax treatment.

The fate of the provision was always in doubt given the Democrats’ slim control of the Senate. And Ms. Sinema had previously opposed a carried interest measure in a much larger bill called Build Back Better, which never secured the 50 Senate votes needed — Republicans have been unified in their opposition to any tax increases.

Had the legislation passed in the form that Mr. Schumer and Mr. Manchin presented it last week, the shrinking of the carried interest exception would have brought Democrats a tiny bit closer to realizing their vision of making the tax code more progressive.

What is carried interest?

Carried interest is the percentage of an investment’s gains that a private equity partner or hedge fund manager takes as compensation. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.

Under existing law, that money is taxed at a capital-gains rate of 20 percent for top earners. That’s about half the rate of the top individual income tax bracket, which is 37 percent.

The 2017 tax law passed by Republicans largely left the treatment of carried interest intact, after an intense business lobbying campaign, but did narrow the exemption by requiring private equity officials to hold their investments for at least three years before reaping preferential tax treatment on their carried interest income.

What would the Manchin-Schumer agreement have done?

The agreement between Mr. Manchin and Mr. Schumer would have further narrowed the exemption, in several ways. It would have extended that holding period to five years from three, while changing the way the period is calculated in hopes of reducing taxpayers’ ability to game the system and pay the lower 20 percent tax rate.

Senate Democrats say the changes would have raised an estimated $14 billion over a decade, by forcing more income to be taxed at higher individual income tax rates — and less at the preferential rate.

The longer holding period would have applied only to those who made $400,000 per year or more, in keeping with President Biden’s pledge not to raise taxes on those earning less than that amount.

The tax provision echoed a measure that was initially included in the climate and tax bill that House Democrats passed last year but that stalled in the Senate. The carried interest language was removed amid concern that Ms. Sinema, who opposed the measure, would block the overall legislation.

Why hasn’t the loophole been closed by now?

Many Democrats have tried for years to completely eliminate the tax benefits private equity partners enjoy. Democrats have sought to redefine the management fees they get from partnerships as “gross income,” just like any other kind of income, and to treat capital gains from partners’ investments as ordinary income.

Such a move was included in legislation proposed by House Democrats in 2015. The legislation would also have increased the penalties on investors who did not properly apply the proposed changes to their own tax filings.

The private equity industry has fought back hard, rejecting outright the basic concepts on which the proposed changes were based.

“No such loophole exists,” Steven B. Klinsky, the founder and chief executive of the private equity firm New Mountain Capital, wrote in an opinion article published in The New York Times in 2016. Mr. Klinsky said that when other taxes, including those levied by New York City and the state government, were accounted for, his effective tax rate was between 40 and 50 percent.

What would the change have meant for private equity?

The private equity industry has defended the tax treatment of carried interest, arguing that it creates incentives for entrepreneurship, healthy risk-taking and investment.

The American Investment Council, a lobbying group for the private equity industry, described the proposal as a blow to small business.

“Over 74 percent of private equity investment went to small businesses last year,” said Drew Maloney, chief executive of the council. “As small-business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”

The Managed Funds Association said the changes to the tax code would hurt those who invested on behalf of pension funds and university endowments.

“Current law recognizes the importance of long-term investment, but this proposal would punish entrepreneurs in investment partnerships by not affording them the benefit of long-term capital gains treatment,” said Bryan Corbett, the chief executive of the association.

“It is crucial Congress avoids proposals that harm the ability of pensions, foundations and endowments to benefit from high-value, long-term investments that create opportunity for millions of Americans.”

Jim Tankersley contributed reporting.

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Business

OAKLAND: Safeguarding Your Business

Published

2 years ago

on

April 10, 2023

By

Doni Glover

OAACC partners with PNC Bank offering a variety of topics for business owners. FREE event, but please RSVP NOW for planning purposes.

By Oakland African American Chamber of Commerce (OAACC)

(OAKLAND – April 10, 2023) – OAACC is pleased to invite members of local multicultural chambers of commerce to a business networking mixer and presentation entitled “How to Safeguard Your Business in 2023”. Sponsored by PNC Bank, the presentation will cover a variety of topics top of mind of business owners and professionals in the current business climate, including:

Assessing the safety and security of banks and financial institutions,
Diversifying investments in inflationary times
Protecting your business against fraud

Our moderated panel will feature Megan Schoettmer, Regional President, PNC Bank, Christian Dean, OAACC Board of Directors and Business Center Manager, PNC Bank, Charles Kwan, Investment Advisor, PNC Investments, and Dhaval Shah, Business Banking Manager, PNC Bank.

Light refreshments will be served.

The event is complimentary, but please RSVP NOW for planning purposes.

Business

Benefits Of A Side Hustle During Bad Economic Times

Published

2 years ago

on

March 13, 2023

By

Robaer Washington

@paratynka via Canva

“Good things happen to those who hustle.”

– Anais Nin

(WASHINGTON, D.C. – March 13, 2023) – The COVID-19 pandemic has adversely affected the global economy. Many people have lost their jobs and businesses have closed down as well. The pandemic has highlighted the importance of having multiple sources of income and that is where side hustles come into play. A side hustle is a job or business that someone does in addition to their regular job. Let’s explore three benefits of having a side hustle during bad economic times.

One significant benefit of having a side hustle during bad economic times is the additional income it provides. Side hustles offer a great way to earn extra money, which can be used to supplement one’s regular income. With side hustles, individuals can generate additional revenue streams, which can help cover bills and expenses. Moreover, side hustles can help individuals save up for future investments and retirement.

Another benefit of having a side hustle during bad economic times is the development of new skills. Starting a side hustle requires individuals to learn new skills or improve existing ones. These skills may include marketing, customer service, or time management, among other types of skills. The development of new skills can help individuals become more valuable in their regular jobs, making them more marketable and competitive in the job market.

A third benefit of having a side hustle during bad economic times is another layer of a sense of security. Side hustles offer individuals a backup plan in case they lose their regular job. In the event of a job loss, a side hustle can provide some income until a new job is found. Having a side hustle can also help individuals feel more in control of their financial situation, reducing the stress and anxiety that comes with financial uncertainty.

Having a side hustle during bad economic times offers several benefits. It provides additional income, helps develop new skills and offers a sense of security. Side hustles have become increasingly popular in recent years and the COVID-19 pandemic has highlighted their importance. It is essential for individuals to explore side hustles that align with their interests and skills to maximize the benefits they offer.

Business

The Benefits of an Online Education – For Working Professionals

Published

3 years ago

on

November 18, 2022

By

Robaer Washington

(MONTGOMERY VILLAGE, MARYLAND – November 18, 2022) – Are you a working professional looking for the convenience and flexibility of an online education? An online education can be a great way to further your knowledge, increase job opportunities and even earn you additional credentials without sacrificing your current commitments. In this article, we will explore various benefits of an online education for working professionals.

FURTHERING YOUR KNOWLEDGE

With the flexibility that comes with an online education, you are able to fit study into your existing schedule and take classes at times that are convenient for you. You also have access to many resources that might not be available in traditional classrooms such as webinars, lectures, and tutorials.

In addition to the convenience of studying from home, developing a fundamental understanding of concepts is often easier since online courses provide an interactive learning environment. You can easily connect with peers and professors to ask questions or get help when needed. Additionally, online courses allow you to practice digital literacy skills such as research, problem-solving, online communication, and critical thinking which are important for success in today’s digital world.

INCREASE JOB OPPORTUNITIES

An online education can open up a variety of job opportunities that may not have been available otherwise. Employers are looking for individuals who possess digital literacy skills and may prefer someone with additional credentials earned through online courses. This is especially true in the tech industry where employers often look for candidates who possess specific skills that can be acquired through practicing in an online program. Furthermore, many employers offer incentives such as tuition reimbursement to employees seeking to further their education or gain additional qualifications.

Additionally, an online education allows you to easily access resources from around the world, increasing your chances of finding a job in a different country or region. With ever-evolving technology and globalization, it’s becoming increasingly important for professionals to be able stay ahead of the curve and online education can help you do just that.

CURRENT COMMITMENTS

An online education is a great way to earn additional credentials without sacrificing your current commitments. With its flexibility and convenience, you are able to fit study into your existing schedule and take classes at times that are convenient for you. Furthermore, there is no need to worry about commuting or finding parking as you would with a regular class. So, if you’re looking for a flexible way to pursue higher education and gain additional credentials without sacrificing your current commitments, then an online education could be the perfect option for you! With ever-evolving technology and globalization, it’s becoming increasingly important for professionals to stay ahead of the curve and an online education can help you do just that.

In conclusion, an online education can be a great way to further your knowledge and increase job opportunities. With its flexibility and convenience, you are able to fit study into your existing schedule and take classes at times that are convenient for you. Additionally, you have access to many resources from around the world which may not be available in traditional classrooms. Furthermore, employers often offer incentives such as tuition reimbursement to those pursuing higher education or gaining additional qualifications. So if you’re looking for a flexible way to pursue higher education or gain new skills without sacrificing your current commitments, then an online education could be the perfect option for you! Take advantage of this opportunity today and begin learning something new! Good luck!