The Real Problem with the Carried Interest Tax

Another broadside from a supporter of the status quo. But one aspect is forgotten (on purpose?) in this ongoing saga. For arguments sake let us agree that it is beneficial and fair to give entrepreneurs and investors a lower tax rate on capital gains. But the promoters behind Private Equity are not always putting sufficient funds of their own into the businesses they finance. Taxable income could easily be converted into capital gains if they award themselves a sort of founder's shares at artificially low prices - and voila, when the company/asset is sold they can book a capital gain that is taxed at a much reduced rate. Given the opaque nature of Private Equity one has to assume that this practice is quite prevalent in the industry. In addition, basing buy-out vehicles in offshore tax havens allows even more manipulation of tax levels. So while most of the money managed by 'Private' Equity ultimately comes (via financial intermediaries) from the Public the tax affairs of the promoters are the one aspect that is really private. Maybe a small part of all the noise and energy spent on reforming pay in the listed company sector would be much better addressed to shed more light on the pay practices in the Private Equity business.
(19-April-2019)
Hiking the tax on carried interest capital gains is a lose, lose, lose