Carried interest tax break 'indefensible,' says Calpers CIO

Carried interest tax break 'indefensible,' says Calpers CIO
Dear slams 15% rate for PE firms, citing its 'gross unfairness'
MAY 30, 2012
The tax rate paid by private equity managers on much of their income, less than half that for ordinary wage earners, is an “indefensible” tax break, the chief investment officer of the California Public Employees' Retirement System said. Calpers, as the pension fund is known, is one of the largest investors in private equity with about $50 billion as of June 30. The fund, the largest public pension in the U.S., has $234 billion of assets under management. “General partners should recognize that tax treatment of their income has become indefensible,” said Joe Dear, the fund's chief investment officer, at a meeting of Calpers' board today in Sacramento. Private equity managers' carried interest is taxed at the 15 percent rate for capital gains, rather than the 35 percent top rate that applies to regular income. U.S. public and private pensions provide 42 percent of the capital for all private equity investments, according to the Private Equity Growth Capital Council in Washington. “The tax treatment is incomprehensible to ordinary taxpayers and citizens,” Dear said in an interview. “Ultimately private equity depends upon a public policy environment which encourages and fosters their investment style. If people come to believe that private equity general partners are reaping giant returns while paying less in taxes than wage earners do, their support for those policies that enable private equity to work will be withdrawn.” RELATED ITEM Romney's tax returns shoot holes in his cap gains stance » Mitt Romney's campaign for the Republican presidential nomination has put a spotlight on the industry, including Romney's former firm, Boston-based Bain Capital LLC. President Barack Obama's budget proposal today reiterates his proposal to tax carried-interest income earned by hedge fund managers and private equity partners at ordinary income rates, raising $13 billion over a decade. Private equity firms typically charge about 1.5 percent of assets to cover their expenses, and 20 percent of the profits from investments as compensation, or carried interest. Under pressure from rivals, Romney, whose wealth is estimated at between $190 million and $250 million by his campaign, last month disclosed tax returns showing he paid a 13.9 percent tax rate in 2010 on income of $21.6 million. “The private equity industry can use logical argument all day long,” Dear said. “It does not diminish the gross unfairness that people perceive. That some of the wealthiest and most prosperous people in this county pay a lower tax rate on their income than wage earners.” U.S. Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said on Jan. 18 that he plans to reintroduce legislation that would tax carried interest at ordinary income rates. --Bloomberg News--

Latest News

Mesirow acquires part of flexPATH in second retirement deal of 2026
Mesirow acquires part of flexPATH in second retirement deal of 2026

Chicago-based Mesirow Fiduciary Solutions adds flexPATH's plan-level outsourced fiduciary book, boosting its retirement market reach to $164 billion.

Advisor moves: LPL lands $350M veteran advisor duo in Florida
Advisor moves: LPL lands $350M veteran advisor duo in Florida

Also, Raymond James's employee advisor channel adds breakaways from Wells Fargo and Stifel, while UBS welcomes an ex-Morgan Stanley duo in Indiana.

SEC accuses crypto firm founder of running $425 million Ponzi scheme
SEC accuses crypto firm founder of running $425 million Ponzi scheme

It promised guaranteed principal and 10% monthly returns. The SEC says it invested nothing.

MassMutual Ascend tops $2 billion in RIA annuity sales as advisors warm to income products
MassMutual Ascend tops $2 billion in RIA annuity sales as advisors warm to income products

Ten years after entering the fee-based annuity market, MassMutual Ascend says nearly half its lifetime sales came in the past two years alone – but barriers remain among fee-only advisors.

Fintech bytes: Wealth tech firms target advisor productivity with new integrations
Fintech bytes: Wealth tech firms target advisor productivity with new integrations

Amplify, WealthReach, Zeplyn and Zocks have unveiled partnerships aimed at automating portfolio management, content creation, account opening, and client communication.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income