Romney’s taxes, and the carried interest tax rate

There’s a really interesting article in today’s Wall Street Journal about Romney’s tax return.  It describes how the carried interest tax rate paid by Romney could be problematic.

Carried interest income is a special type of income category claimed by people who manage venture capital and other investment activities.  It’s paid to compensate them for their work in making and supervising investments.  The tax rate on carried interest income is the same as the capital gains rate, which today is 15%.

A couple of comments:

1.  In order to receive a carried interest tax rate, you need to have performed services for the investment fund which is compensating you.  However, the carried interest that the Romney family received was earned by a blind trust in Mrs. Romney’s name, and it wasn’t clear who, if anyone, actually performed any services.

2.  As a free market taxpayer, I can’t see any justification for letting financial investors and managers pay a capital gains rate in lieu of the normal income tax rate that people who actually run companies pay.  To me, allowing favorable tax treatment for financial engineers and not for real engineers is pretty stupid.

Note that #2 is a general comment, while #1 could be a specific problem for Romney (though I don’t know a whole lot about the details of carried interest tax treatment).

If there’s any defense of a lower carried interest tax rate, Romney had better get ready to state it.


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