The Obama administration is planning to change the tax consequences of carried interest. Carried interest is simply the profits of hedge funds, partnerships, real estate investment trusts, etc. They pay taxes on that profit as if it were capital gains and not ordinary income. Investment companies tax their earnings that way, too.
"Venture capital investors put up some personal money, and then more importantly we put up our brains just like the entrepreneur does,” [said Mark G. Heesen, president of the National Venture Capital Association.] “We don’t just put up money and walk away, and see you in a couple of years. We take an active role in growing these companies."
So if auto workers, hamburger flippers and just about anybody else who wants to lower their tax rates before the administration changes this rule, just tell the IRS that anybody can hold a wrench or a spatula, but that you “put up your brains” behind those modest implements to take “an active role in growing these companies." And while you’re at it, you can demand a portion of the profits.
Investment partnerships generally work this way: They are run by managers who use money from investors to buy and sell buildings, companies and other assets. When the investments are sold, the investors typically take 80 percent of the profits. The managers collect the remaining 20 percent (known as the carried interest).
You can’t make this stuff up.