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Carried Interest Debate (Wiki Page) (view source)
Revision as of 16:09, 8 June 2016
, 16:09, 8 June 2016no edit summary
|Primary Billing=Dr. Edward Egan
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Carried interest is a form of performance-based compensation that general partners of various types of private investment funds receive in exchange for their work. It is generally calculated as 20 percent of a fund's profits[http://www.taxpolicycenter.org/briefing-book/what-carried-interest-and-how-should-it-be-taxed]. The Carried Interest Debate revolves around treatment of carried interest in taxes. Currently, carried interest is treated as a capital gain for tax purposes rather than ordinary income, which results in it being taxed at a maximum rate of 20 percent[[http://www.bankrate.com/finance/taxes/capital-gains-tax-rates-1.aspx]] rather than 39.6 percent[[http://taxfoundation.org/article/2016-tax-brackets]] and receiving a perceived advantageous tax deferral. Opponents of carried interest find this treatment unjust whereas its supporters find it necessary to encourage investment.
==Private Investment Fund Structure==
Before considering carried interest, one must first have a basic understanding of the organizations that currently benefit from it. Private investment funds, set up as limited liability companies or limited partnerships, invest capital in order to attain returns for investors. These funds are organized under general partners and limited partners. The general partners are the funds' managers or managing firms. The limited partners are the funds' investors who typically include pension funds, insurance companies, and wealthy individuals. Types of private investment funds consist of private equity funds, venture capital funds, and hedge funds.
