Changes

Now to discuss the elephant in the room, carried interest. General partners of the funds are compensated through management fees, carried interest, and profit from whatever stake (typically no more than 5 percent) they might have in the fund. Management fees are consistently around 2 percent of a fund's assets under management and are paid regardless of the fund's performance. Carried interest, alternatively, is a contractual right for the general partner to receive about 20 percent of the fund's profits<ref name="fleischer" />. The controversy stems from carried interest's tax treatment as it faces a maximum capital gains rate tax of 20 percent<ref name = "bell" />, compared to the maximum ordinary income tax rate of 39.6 percent<ref name = "taxbracket" />. Those in favor of a low capital gains tax believe that a higher rate would reduce incentive for general partners to take risks and this lack of incentive would then discourage innovation and efficiency in markets. Those opposed frequently argue that carried interest is performance-based compensation, much like a bonus, and therefore should be subject to the same rate, i.e. the ordinary income rate<ref name = "cbo">.