Which of the following statements is false?
- Mitt Romney made his fortune as a private equity investor.
- Mitt Romney has received more campaign donations from private equity pros than has any other presidential candidate.
- Mitt Romney is opposed to changing the tax treatment of carried interest from capital gains to ordinary income.
- Mitt Romney does not understand the carried interest tax issue.
- None of the above.
Until yesterday, I would have picked number four. But, based on a TechCrunch interview with Romney, I’m leaning toward number five. And it’s simply befuddling.
Few people, let alone presidential candidates, should understand the carried interest tax issue better than Romney. He ran Bain Capital, still hangs in private equity circles and was governor of a state that probably ranks first in terms of per capita venture capitalists. But despite the resume, here is what he told TechCrunch’s Mike Arrington:
With regard to carried interest associated with venture capital, real estate, private equity, I do not believe in raising taxes. And it is a capital gain because those individuals do make an investment, it’s a small investment, but they make an investment of their own capital and I would treat capital gains as capital gains instead of trying to re-categorize them as normal income.
As Romney should surely know, the Levin bill would specifically maintain capital gains treatment of any carried interest derived from a general partner’s personal investment. General partners typically put up between one percent and five percent of funds, and the IRS would treat profits from those commitments just like the commitments of any outside limited partners (i.e., as capital gains). The issue at hand is how to treat GP profits derived from managing someone else’s money.
Romney may be trying to split the baby a bit by arguing that any slice of personal risk entitles an individual to capital gains benefit from the whole pie, but that wouldn’t make any sense. I’m trying to think of a proper analogy, but it’s just too silly (if you’ve got one, send it over).
I have obviously staked out a position in favor of changing carried interest tax treatment, but have the utmost respect for those who disagree (i.e., most of my readers)… Well, with a qualifier: Utmost respect as long as we’re drawing different conclusions based on an accurate understanding of the underlying issue. Unless he misspoke – and I’ve called his press office for clarification — Mitt Romney does not seem to have such an understanding. Again, simply befuddling.