But Romney’s presidential campaign presents the defenders of the carried interest tax loophole with an entirely new - and much more serious - kind of trouble. Surely they’re cooked if Romney, the man who founded Bain Capital, wins.
In recent years, critics of the carried interest tax treatment twice thought they gathered enough momentum to change the rules, and I piled on in columns hoping to kill the loophole. Both times, that energy fizzled in Washington and amounted to nothing. There’s reason to believe a third shot may do the trick.
Public sentiment is already changing, at least a bit. Consider a poll that Bloomberg News released yesterday that found two-thirds of money managers consider the low tax treatment for carried interest unjustified. Money managers!
Private equity partners charge their customers a flat administrative fee to manage funds. They earn most of their money performance fees as carried interest. Meaning the compensation that can make a private equity manager truly wealthy comes with a huge tax break.
All kinds of people earn performance rewards as part of their overall compensation. Mutual fund managers get bonuses that depend on results. People in sales earn much of their money based on performance. Even union workers at General Motors got $4,000 profit-sharing bonuses last year.
The Internal Revenue Service isn’t offering any of them tax deals on their performance-based income. So why are the Mitt Romneys of the world different?
The carried interest controversy popped back into the headlines this week when Romney released his federal tax returns for 2010 and 2011. A substantial part of Romney’s income in both years came in the form of carried interest.
The numbers, for both years combined: Romney earned $42 million, which included $13 million of carried interest. Romney would have paid $2.6 million more in taxes if that performance money was taxed as ordinary income.
