Open AccessA Matter of Equity- The Taxation of Private Equity General Partners “Carried Interest”
Author(s) -
Corinne Crawford,
Constance J. Crawford,
Glenn C. Vallach
Publication year - 2020
Publication title -
journal of economics, trade and marketing management
Language(s) - English
Resource type - Journals
eISSN - 2642-2417
pISSN - 2642-2409
DOI - 10.22158/jetmm.v2n2p1
Subject(s) - salary , private equity , equity (law) , private equity firm , club deal , business , private equity fund , economics , interest rate , finance , public economics , market economy , political science , law
The carried interest tax loophole has helped private equity to become one of the most lucrative sectors of the financial Industry. As private equity general partners are taxed at long term capital gains rates on partnership profits allocated to a carried interest, while the same amount of compensation structured as salary would be taxed at ordinary income rates. Thus, General Partners pay a top tax rate of 20% on their carried interest instead of the 37% they would pay if the compensation were structured as salary, which many economists and tax experts believe it actually is.