Last Nite's Debate: What Type of Interest...???

Late in the debate, somehow the topic of “carrot” interest or possibly “carried” interest arose. I honesty could not tell what they were saying. Being your average Joe, what were they talking about? I assume it’s something I’ll never see…

According to Forbes, you’re not the only one in the dark.

Here’s the really simple version: it’s called “carried interest.” Some folks in the investor class make money that is basically considered by the tax code to be like capital gains rather than income. That allows these financial types to pay substantially lower personal income taxes than if they were drawing a salary of the same amount. In 2012, Mitt Romney’s taxes showed he paid about a 15 percent tax rate, where someone who made that level of ordinary income would likely pay substantially higher.

Trump suffers from a condition where, because of his unusual skin tone, he is constantly followed around by a pack of hungry rabbits, who have mistaken him for a root vegetable. The swarms are particularly bad around April, which is why Trump hasn’t filed his taxes in twenty years: he spends that month hiding from the rabbits. One of his major complaints about Clinton is that, while Senator, she did nothing to help out Trump with his “carrot interest” problem.

I will warn that I am not an expert, but this is what I gleaned from Wikipedia. Please correct my misconceptions.

Let’s say you’re a hedge fund manager. A client comes in and asks you to manage $100 million for them. You invest that, and a year later the fund is worth $110 million. This means under your management there was a $10 million profit. You’re paid for the performance of the fund, typically 20%, so you get paid $2 million dollars for the increase in the fund. That two million is “carried interest”.

If you were, for example, a coal miner that got a bonus of $1000 for bringing in more coal over quota, you would get charged the marginal tax rate on that amount, so if you were making $50,000 and got that $1000 bonus, you’d pay 25% tax on your bonus. However, the hedge fund manager’s carried interest is listed as capital gains, not regular income, so the rich guy only pays 15% on that bonus despite making much more than the coal miner.

Some people think it would make more sense to tax the hedge fund manager’s bonus as regular income instead of capital gains.

I watched the debate between the Packers and Giants.

Trump as much as said that all rich people do this, including Hillary’s “Wall Street supporters.” However (from another thread):

Is this the same thing, or am I mixing apples and oranges? I just wanted to get Buffett’s quote in.

*Who is a lot richer than Trump.

I believe a carryforward is when you declare a net operating loss for one year and then use that negative balance to reduce your tax burden in future years.

It’s times like these when you wish the Dope allowed the posting of images.

insert standard facepalm image