'Carried interest' no cash cow, says study

Raising taxes on private equity managers probably won’t generate a whole lot of money, according to a new study.
AUG 22, 2007
By  Bloomberg
Raising taxes on private equity managers probably won’t generate a whole lot of money, according to a new study. At the moment, managers typically collect 20% of the profits they make, which are taxed at a 15% capital gains rate. But if the rate goes up to the 35% income tax rate, the government will collect, at most, $3.2 billion in revenue, according to a paper by Michael Knoll, a law professor at the University of Pennsylvania in Philadelphia. Approximately $200 billion is invested each year in private-equity funds, and between $12 billion to $17 billion in carried interest is granted. If that cash were taxed at the ordinary income rate of 35%, it would generate between $2 billion and $3.2 billion in additional revenue, Mr. Knoll said. If taxes on “carried interest,” the cut from profits that managers receive, were to increase, the funds would adjust their structure to dodge the tax reforms, Mr. Knoll said in his study. For example, the private equity funds can have their portfolio companies pay the carry, instead of having the limited partners foot the bill, he said. This way, the portfolio companies become eligible for a deduction and the money saved will be equivalent to the additional tax the general partners paid.

Latest News

Number of CFP professionals reaches new worldwide record
Number of CFP professionals reaches new worldwide record

The global body overseeing the CFP mark hails milestone year, with the US accounting for most of the 230,000 plus planners now holding the designation.

Ackerman promoted at Integrated Partners, Robertson Stephens strengthens board
Ackerman promoted at Integrated Partners, Robertson Stephens strengthens board

Some of this week's hires across the wealth and investment industry

Emergency savings dynamic shifts to positive for first time in three years
Emergency savings dynamic shifts to positive for first time in three years

More Americans have added to their savings than depleted them.

Muted week for stocks, bonds amid data, trade, conflicts
Muted week for stocks, bonds amid data, trade, conflicts

Some big headlines have made many investors cautious this week.

Dollar bets disrupted by Trump trade speculation
Dollar bets disrupted by Trump trade speculation

Traders see tariffs mostly as a bargaining tool.

SPONSORED Record growth: Interval funds emerge as key players in alternative investments

Blue Vault Alts Summit highlights the role of liquidity-focused funds in reshaping advisor strategies

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.