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View Diary: It's Not Wage Stagnation, It's Wage Robbery (151 comments)

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  •  lunachickie - this is one area where I am an (1+ / 0-)
    Recommended by:
    Balto

    expert and every tax professional on this site agrees with my statement about equity compensation and that it is taxable as W2 income. This isn't my opinion.

    I have engaged the best tax professionals in SF, NYC, and DC on this issue and there is no way to make non-qualified stock options (the only kind CEOs receive) and restricted stock qualify for long term capital gains. If it could have been done I would have done it while serving as compensation committee chairman, a role I have had at numerous public companies since 1988.

    If you have some specific examples that show otherwise, I'd like to see them. I'd love to know how to do it.  

    "let's talk about that"

    by VClib on Tue Mar 04, 2014 at 05:47:52 PM PST

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    •  So if that were true how did Romney have (1+ / 0-)
      Recommended by:
      VClib

      an effective tax rate of less than 15%? Wasn't he paying deferred income taxes at the capital gains rate? I guess you agree that the very wealthy should have the tax code written in their favor. What we have today is not a progressive tax system which incentivizes reinvestment in our domestic economy. That's not okay by me and something I believe we need to work to change.

      Really don't mind if you sit this one out. My words but a whisper -- your deafness a SHOUT. I may make you feel but I can't make you think..Jethro Tull

      by RMForbes on Tue Mar 04, 2014 at 06:28:06 PM PST

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      •  RMF - Romney was in one of those rare (1+ / 0-)
        Recommended by:
        Balto

        businesses where the managers can structure their incentive compensation to qualify for long term capital gains. You have to start with a partnership structure. So that eliminates all corporations. This is important because in a partnership profits and losses are determined by contract, the limited partnership agreement, not by the amounts invested by all of the parties. The partnership must have a finite life, typically ten years. So that also rules out corporations. The partnership must acquire assets, hold them long enough to qualify for long term capital gains treatment and then within the finite life of the partnership all the assets must be SOLD to recognize the gains and the proceeds distributed to the parties.

        Subject to certain performance requirements the partnership managers are awarded, by contract with the investors, an equity ownership position in the assets. Upon liquidation all partners are treated the same so the managers receive incentive compensation that is eligible for long term capital gains treatment, just like the financial investors who provided the capital to the partnership. This incentive structure is called a "carried interest" and has been how all investment partnerships have been structured since the early 1970s. The typical partnership managers are in venture capital, hedge funds, private equity, real estate, oil & gas and movies.

        Bain Capital was initially a venture capital firm and expanded to also be a private equity investor. Both of those investment areas are structured as investment partnerships and conform to the requirements I outlined above. Mitt Romney has a continuing carried interest in each investment partnership formed by Bain Capital and that is why his income was eligible for long term capital gains tax rates.

        It's unfortunate that people think that because Mitt Romney had such a low tax rate that all equity compensation awarded to executives has the same tax treatment. Romney was not a corporate manager, he was an investment manager.  

        "let's talk about that"

        by VClib on Tue Mar 04, 2014 at 07:00:05 PM PST

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        •  I know all about sole proprietorships, partnership (0+ / 0-)

          LLC's and S-Corps, their profits are all like you say taxed as the individual income of the owner(s). However, C-Corps and especially transnational corporations are not taxed this way at all. Why do you say they are?

          Really don't mind if you sit this one out. My words but a whisper -- your deafness a SHOUT. I may make you feel but I can't make you think..Jethro Tull

          by RMForbes on Tue Mar 04, 2014 at 07:42:39 PM PST

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          •  RMF - I didn't write about the taxation (0+ / 0-)

            of corporations at all. I was only discussing the taxation of the incentive compensation of executives and the differences between corporate executives and investment managers.

            I made no mention of corporate taxes. This was all about the taxation of individuals.

            I would appreciate your feedback because I obviously wasn't clear and I am thinking of making this comment into a diary.

            "let's talk about that"

            by VClib on Tue Mar 04, 2014 at 07:48:31 PM PST

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            •  You're right, I wasn't clear (0+ / 0-)

              Corporate executives at a fortune 500 transnational corporations don't have their compensation taxed in the same way as the rest of us small business owners at all. The current tax code favors these already very wealthy individuals which I believe is incredibly wrong in my point of view. I believe all income from any source should be taxed at least 50% on income over $3 million a year like it was between 1935 and 1986 when Reagan deregulated corporate compensation regulations. We need to close these loopholes that allow corporate CEO's to pay little or now income taxes on their compensation.

              Really don't mind if you sit this one out. My words but a whisper -- your deafness a SHOUT. I may make you feel but I can't make you think..Jethro Tull

              by RMForbes on Tue Mar 04, 2014 at 08:12:13 PM PST

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              •  RMF - Senior Fortune 500 execs (2+ / 0-)
                Recommended by:
                nextstep, Balto

                pay the top marginal rate of nearly 40%. You can argue that is too low and should be higher. But because all of their corporate compensation is W2 earned income, they are paying the top rate. They would have to have a huge investment portfolio and generate a lot of capital gains from selling appreciated capital assets, or making very big charitable gifts, to drive down their effective rate. So these executives do in fact pay taxes on the same basis as successful small business owners. In fact, small business owners have more options (but less income) to legally shelter income than Fortune 500 execs.

                When the Tax Reform Act of 1986 passed it closed nearly all the loopholes, that was the rationale of dropping the top marginal rate from 50% to 28%. Rates before 1986 and after really can't be compared, because they apply to a completely different IRS code for individuals. Not many loopholes remain for corporate executives. All their perks are now taxable income. I remember when car allowances, and other similar executive benefits weren't taxable income. That's long gone.

                "let's talk about that"

                by VClib on Tue Mar 04, 2014 at 08:53:00 PM PST

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