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Does not eliminate carry. Changes tax treatment of carry from cap gains to ord. income.
lmfao
bump. this isnt being spoken about enough
Bump
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Good lesson for Democrat PE partners. You get what you want good and hard.
Lol lets put aside that Trump and Obama advocated changing the tax treatment - I don’t know why people say this like everyone votes based on a single issue
because people are fucking retarded
As if people are voting democrat to preserve a single tax provision :/ I’d gladly trade away a sliver of a payment that once received is likely minimal to my quality of life to preserve more fundamental ideals.
I’m not sure why people take such strong views on one topic. This forum is so focused on money and if that is the singular thing that drives your politics, that can be concerning. I understand arguments about best use of the funds (does the government spend money responsibly? Etc), but people here are just so focused on making money and that usually doesn’t actually lead to success (rarely do people chasing money succeed in careers unless they are truly passionate about the work) and also ignores all the other considerations (common good, and just basic logic on how taxes work, etc).
As an example, my wife should make ~$3mm in carry this year (payout from vested carry) as an employee. Why is that taxed at a different rate than income? I think discussions around taxes overall make sense (do we have the right tax rates? Are the brackets correct? Do we get the right benefits from the government?), but the disconnect between income and carried interest isn’t logical.
Not my point. PE seniors are almost entirely Democrats, they support tax and spend but have been largely free of the extra tax burden themselves. Now finally they have to wake up, smell the roses and eat the shit of their own politics. I'm paying higher income tax since Biden, and companies I own shares in are paying higher corporate rates. PE partners don't feel it the same way because of carry comp so now they get to learn to dark side of tax and spend - sometimes it's you getting taxed.
Whynot? It’s gains from a capital investment. Why would you want that taxed as ordinary income?
Damn you win. Hella prestigious wife. @?
Its not a done deal yet, Sinema still needs to get on board (has historically said no), and as I understand it, its a change in the holding period from 3 to 5 years.
Does anyone know how the current 3yr treatment works? Is it based on the total fund level? With a European waterfall, you're not getting carry distributions for at least 5 years anyway
Waterfall isn't relevant.
Your taxable income / cap gains from carry doesn't correlate to the waterfall, it correlates to when investments in the fund are realized (e.g., if you sell a business in year 2 of the fund, even though you don't see cash until year [5-8] due to European waterfall, you pay your taxes in year 2). Individuals with carry receive tax distributions as part of the waterfall to handle this.
As mentioned in other threads, a lifetime career in PE will bring you about 70m (give or take). With the new tax treatment, it will bring you still multiple 10m (think of 30m - 60m). Therefore, people that want to be in PE the long-term shouldn’t change their opinion, because of that.
Just take a look at e.g. Germany. Not sure whether carry is taxed as capital gain (25%) or ordinary income (48%), nonetheless, PE is still one of the most lucrative careers one can follow.
(As a German, however, I believe that ordinary income is taxed far too high here and would love you tax rates.)
A lifetime career in PE will most certainly NOT net you 30-60 million unless you're promoted to partner at a pretty young age. Also, all of that is contingent on being able to make partner which is a ridiculously difficult feat. It's also worth mentioning that carry may not materialize
Of course, there are some assumptions to it that I should have make clear. Fund size of 5bn, CoC of 2, Carry every 5 years, 2-20 fee structure, 1.5% carry from age 40 to 60 i.e. before taxes 15m at 40, 45, 50 and 55. Combined m, this are exactly 60m before taxes. Assuming tax rate below 50%, you get 30 - 60m.
I think those numbers are optimistic but not impossible.
Changes almost nothing except on the margin. Carry will still be the primary form of upside compensation / wealth generation for senior PE investors, but instead of keeping 80% of the gross number you’ll keep 60%.
I won’t pretend I’m happy about this, but realistically successful PE funds will still make their GPs and senior employees quite wealthy, and for most people tax consequences aren’t the key determinant in career choice
Ah yes, I can't wait for the federal government to allocate this $18 billion windfall brilliantly. As we all know, the government is incredibly prudent with taxpayer dollars. Something like $80 billion of COVID relief money was misappropriated, $2.4 trillion spent in Afghanistan, DoD spent $4.6 million dollars on lobster in a month, and so so much pork barrel spending in every bill. But yes, take money away from the successful investors who are driving the economy forward and generating returns for pension funds and endowments and blow it in one day.
Pretty sure that $18bn will go straight into Zelenski's pocket. Maybe he wants to build another mansion in Miami?
You are definitely one of those QAnon and freedom caucus / America first freaks. I’ll happily have my tax dollars go to weaponry for its intended use since the 60’s.
Higher taxes suck but you aren't putting capital at risk so why do you deserve to be taxed like you are?
Any investment you make in the fund (putting capital at risk) will be taxed as cap gains.
Maybe they should go after stock based compensation next?
In a lot of cases, you do miss out on cap gains with stock based comp. Very hard to time a transaction. I wonder what the %s are.
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