A Cost-Benefit Analysis of Corporate Political Spending Disclosure

Oct 30, 2013

Download the paper (PDF) by Susan Holmberg

This report provides a generalized cost-benefit analysis of a potential rule promulgated by the Securities and Exchange Commission (SEC) that would require public corporations to disclose corporate political spending.

Download the paper (PDF) by Susan Holmberg

This report provides a generalized cost-benefit analysis of a potential rule promulgated by the Securities and Exchange Commission (SEC) that would require public corporations to disclose corporate political spending. Existing evidence on both the dynamics of corporate political spending and the costs and benefits of SEC mandatory disclosure in general, as well as the use of agency theory, an economic framework that highlights the asymmetric interests and knowledge between corporate managers and shareholders, indicate that the range of potential benefits of corporate political spending disclosure – to shareholders and the market – vastly outweigh the possible costs of compliance to public corporations. 

Key Findings: 

  • Shareholders are becoming increasingly concerned with corporate spending for political purposes. The lack of information available to the public about such spending puts shareholders and the public at enormous economic risk.
  • The costs of requiring the disclosure of corporate political spending would be nominal. For a politically active company to file accurate IRS returns, it must already keep track of its political spending. A new rule requiring disclosure would merely make this internal accounting of corporate political spending available for the investing public.
  • Research also suggests that corporate political spending is not proprietary information and that requiring disclosure will not be a larger burden for smaller firms.
  • The benefits of mandatory disclosure of corporate political spending would be substantial. It would diminish the monitoring costs for shareholders, create better economic incentives for corporate executives, and generate positive externalities for companies that are already in compliance, and provide potential investors with key information for making rational investment decisions.

Read "A Cost-Benefit Analysis of Corporate Political Spending Disclosure," by Roosevelt Institute Director of Research Susan Holmberg.

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The Solution Economy: Problem Solving Everyone Can Agree On

Oct 29, 2013Azi Hussain

The public-private partnerships of the solution economy could allow conservatives and liberals to agree on solutions to social problems, for once.

The public-private partnerships of the solution economy could allow conservatives and liberals to agree on solutions to social problems, for once.

There is a quiet transformation of our society going on that is redefining how we solve our most entrenched problems. A recently published book, The Solution Revolution by William Eggers and Paul Macmillan, tracks this transformation, the rise of the “solution economy.” The solution economy is a paradigm in which societal problems are addressed not only by the government, but also through multi-sector approaches. The public, social, and private sectors are all involved.

One fascinating example of the solution economy at work is Recyclebank. Recyclebank is a company founded in 2004 by two young people with a simple, but important environmental goal: increasing recycling rates. Instead of operating through government, they created a viable business model by partnering with recycling bin makers, waste hauling companies, and businesses to incentivize recycling. Households in neighborhoods in which Recyclebank operates have recycling bins that are equipped with a chip that weighs the goods in the bin. When the waste hauling companies come pick up the recycling, they take the data from the chip and send it to Recyclebank. Recyclebank then credits that households account with points that can be spent on discounts offered by the network of business that Recyclebank has partnered with. Recyclebank’s model has proven to be devastatingly effective, raising recycling rates in some neighborhoods from under 10% to over 90%. Governments have rightly supported Recyclebank by helping expansion and enrollment. Recyclebank exemplifies how a social mission can be achieved through the private sector and with government support. You can see some more examples of the solution economy at work here.

In the solution economy, markets are created around the very problems considered to be market failures. Participants leverage technology, use innovative business models, and trade in novel currencies such as reputation and social impact to create these markets. Traditionally, government’s role has been to address these market failures, but the solution economy shifts this burden to society-at-large.

So we are at a point where problems traditionally left to the government are increasingly being shouldered by the private and social sectors. It may seem that the solution economy is making government less and less relevant. On the contrary, government policy and partnerships are essential to fostering the solution economy. The question becomes: why should we support the solution economy?

Broadly speaking, the case for the solution economy is a progressive one. The solution economy is the next step in social organization. We are moving from institutions such as governments operating in silos, to creating entire ecosystems to solve problems. The problem-solving capacity of the solution economy is far greater than that of government’s alone. With governments, social organizations, businesses, and individuals all working toward a solution, the results are far more impressive. In fact, it would be nearly impossible to tackle some of our most complex challenges, such as human trafficking, without a multi-sector approach. We need to take the next step forward and fully embrace the solution economy if we want to resolve our deep-seated societal problems.

The case for the solution economy also fits both liberal and conservative ideologies. For liberals, the solution economy can address many of the social issues they care about, such as poverty and opportunity for immigrants, at a much lower cost. This can free up money for governments to concentrate on issues that need greater resources. Plus, when smaller or local programs funded by the solution economy are shown to be effective, governments can incorporate them into various levels of public policy to bring them to scale, introducing a whole new source for government innovation.

Conservatives can also applaud the cost savings introduced by the solution economy, as well as the market mechanisms at play. Not only does the solution economy solve problems, but it also generates tremendous economic value. But most importantly, the solution economy reduces the need for heavy-handed government policy by creating lightweight solutions. Let’s take a look again at Recyclebank. Governments could also impose penalties and slap fines on households with low recycling rates to try to incentivize recycling. The administrative costs would be huge and political support for such policies would be dismal. Recyclebank achieves the same outcome but without burdensome government intervention and much more efficiently. The solution economy can at times be a substitute for the big government policies that conservatives oppose. Supporting the solution economy might be the one thing that both of our political parties can agree on.

Azi Hussain is the Roosevelt Institute | Campus Network Senior Fellow for Economic Development. He is a junior in the School of Foreign Service at Georgetown University majoring in International Political Economy.

 

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Daily Digest - October 22: Keep an Eye on Banking Reform

Oct 21, 2013Rachel Goldfarb

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The New Populists (In These Times)

Sarah Jaffe considers the work that Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) have been doing to bring back banking reform. This populist push isn't necessarily making changes today, but it's bringing the issues into the news.

Click here to receive the Daily Digest via email.

The New Populists (In These Times)

Sarah Jaffe considers the work that Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) have been doing to bring back banking reform. This populist push isn't necessarily making changes today, but it's bringing the issues into the news.

The $13 Billion JPMorgan Settlement Is a Good Start—Now Someone Should Go to Jail (The Nation)

William Greider argues that until individual bankers or the corporate "persons" of banks are prosecuted as criminals, the banks aren't being treated equally under the law. Paying a fine that is almost meaningless to the bank isn't enough.

After the Shutdown and the Debt Ceiling Row – What Happens Next? (The Guardian)

Jana Kasperkevic looks at what's to come in the next couple of months of budget negotiations. She sees a trend toward multiple continuing resolutions, semi-annual fiscal drama, and political theatrics, which aren't exactly good policy.

Poll: Major Damage to GOP After Shutdown, and Broad Dissatisfaction with Government (WaPo)

Dan Balz and Scott Clement report on a new poll in the aftermath of the shutdown. Even a majority of supporters of the tea party disapproved of the shutdown, and support for Congressional Republicans is at an all-time low.

Jersey City Mayor Signs Country’s Seventh Paid Sick Days Law (ThinkProgress)

Bryce Covert reports on Jersey City's new law, which is estimated to give 30,000 workers new access to paid sick leave. State- and city-wide pushes for these bills are growing, which isn't surprising when paid sick leave actually saves employers money.

The Solar Revolution is Being Fought by the Middle Class (Quartz)

Todd Woody looks at a report from the Center for American Progress, which shows that the vast majority of home solar panels are being installed in middle-class neighborhoods. He suggests that middle-class families see solar energy as a money saver.

New on Next New Deal

Block a Grand Bargain with Bold Progressive Solutions to Social Security and Medicare

Roosevelt Institute Senior Fellow Richard Kirsch argues that now is the time to fight for solutions to the problems facing Social Security and Medicare. The proposals he suggests would fix the financial solvency of these programs without cutting a dime in benefits.

What Did the Government Shutdown Battle Really Accomplish?

Roosevelt Institute Senior Fellow Bo Cutter considers what really came out of the government shutdown. Perhaps most importantly, it set the stage for the President to revitalize his second term with a new agenda, since he's one of the few politicians to retain any credibility.

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Party Competition and Industrial Structure in the 2012 Elections

Oct 21, 2013

Download the paper (PDF) by Thomas Ferguson, Paul Jorgensen, and Jie Chen

This working paper by Roosevelt Institute Senior Fellow Thomas Ferguson, Paul Jorgensen, and Jie Chen analyzes patterns of industrial structure and party competition in the 2012 presidential election. The analysis rests on a new and more comprehensive campaign finance database that catches far more of the myriad ways businesses and major investors make political contributions than previous studies. By drawing on this unified database, the paper is able to show that both major parties depend on very large donors to a greater extent than past studies have estimated.

Download the paper (PDF) by Thomas Ferguson, Paul Jorgensen, and Jie Chen

This working paper by Roosevelt Institute Senior Fellow Thomas Ferguson, Paul Jorgensen, and Jie Chen analyzes patterns of industrial structure and party competition in the 2012 presidential election. The analysis rests on a new and more comprehensive campaign finance database that catches far more of the myriad ways businesses and major investors make political contributions than previous studies. By drawing on this unified database, the paper is able to show that both major parties depend on very large donors to a greater extent than past studies have estimated.

The paper outlines the firm and sectoral bases of support for the major party nominees, as well as for Republican candidates who competed for the GOP presidential nomination. The paper shows that President Obama’s support within big business was broader than hitherto recognized. A central conclusion is that many major companies in the sectors most involved in the recent controversies over surveillance were among the president’s strongest supporters. The paper also analyzes patterns of business support for the Tea Party in Congress, showing that certain parts of business are more supportive of Tea Party candidates than others. The role of climate change, financial regulation, and other issues in the election is discussed at length.

Key Findings:

  • Existing data sources used for studies of campaign finance have a variety of serious flaws.
  • As a result, the degree to which major parties’ presidential candidates depend on very large donors has been underestimated and the role small donors play exaggerated.
  • The relation between the money split between the parties and the proportion of votes received by their candidates in House and Senate races appears to be quite straightforward.
  • Firms and executives in industries strongly affected by proposed regulations limiting greenhouse gas emissions heavily backed Mitt Romney. So did much, but not all, of finance.
  • President Obama’s support within big business was broader than hitherto recognized. His level of support from firms in telecommunications and software was very strong indeed, sometimes equaling or exceeding Romney’s. Many firms and sectors most involved in the recent controversies over surveillance were among the President’s strongest supporters.
  • Republican candidates showed sharply different levels of contributions from small donors; President Obama’s campaign, while heavily dependent on large donors, attracted more support from small donors than did his Republican opponent.
  • Big business support for Tea Party candidates for Congress was substantial, but well below levels for more mainstream Republicans. Many of the same sectors that strongly supported Romney also backed Tea Party candidates. Backing for Tea Party candidates by Too Big To Fail banks ran above the average of business as a whole by every measure.

Read "Party Competition and Industrial Structure in the 2012 Elections: Who's Really Driving the Taxi to the Dark Side?" by Roosevelt Institute Senior Fellow Thomas Ferguson, Paul Jorgensen, and Jie Chen.

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California's Environmental Regulations Provide a Vision for the Future

Oct 8, 2013Melia Ungson

Millennials are looking to environmental regulations to ensure their quality of life in the future, but those regulations don't have to be seen as opposed to economic development.

Millennials are looking to environmental regulations to ensure their quality of life in the future, but those regulations don't have to be seen as opposed to economic development.

I am grateful for the clean, potable water that runs from my tap, for the peace of mind that the buildings in which I work and play are free of many toxins that could harm my health, and for the confidence that I will be alerted when air quality is dangerously poor. I appreciate the reliable flow of electricity generated from a variety of sources. And I cherish the housing, the transit systems, the businesses and industries, and the parks that make our communities so vibrant while minimizing the negative impacts on residents and local ecosystems.  

Most of all, I am thankful for the environmental regulations that strive to make all of these things possible.

Environmental protection and economic growth are often put at odds with one another in our public discourse. One need only look at the reaction to President Obama’s plans to set limits on the emissions of new gas-fired and coal power plants. Opponents have claimed that the regulations will harm job creation and economic growth, calling it the next step in the president's “war on coal.” However, I am convinced that we can incorporate both environmental considerations and development needs in our vision for more resilient, strong, and vibrant communities.

Central to this effort are environmental regulations at the national, state, and local levels that require projects to recognize environmental impacts and take steps to mitigate the costs. One law that has been hailed as setting the highest environmental standards in the country is the California Environmental Quality Act (CEQA), which California legislators weakened earlier this year. Ronald Reagan, then Governor of California, signed CEQA in 1970. It was during the height of the environmental movement and the National Environmental Policy Act had been passed just a year earlier. Among its more unique strengths are calls for thorough review of both public and private projects, a prohibition on piecemealing (which requires that developers consider their projects holistically), and legal standing for the public to evaluate projects with environmental costs. Since then, CEQA has served as a model for similar laws in over a dozen other states.

However, it has also been a source of controversy. Opponents say the law is often invoked for reasons unrelated to environmental concerns as a way to stop or delay projects and that the litigation process is opaque. The reasons for litigation or the threat of litigation range from labor disputes to efforts to block competing projects or firms. There are examples where these complaints ring true; for instance, in one case, a gas station owner invoked CEQA while trying to delay or discourage a competitor from adding additional pumps, a move that cost the competitor an extra $500,000. CEQA lawsuits about the environmental impact review process also delayed San Francisco’s plan to add bike lanes on major streets.

But by and large, the law has not actually created a maze of red tape that has caused developers and industry to run from the Golden State. On the contrary, a number of reports show that CEQA has not hurt California’s GDP and has boosted renewable projects. A report issued earlier this year found that since CEQA’s passage in 1970, California has been a leader in green power plant projects and has had fewer cancelled projects than states with less stringent environmental laws. The report also found that California’s per capita GDP, housing relative to population, manufacturing output, and construction activity grew as fast or faster since CEQA has been in place.

Despite those statistics, some legislators in California wanted to weaken CEQA. There was much heated debate, but legislators eventually settled on something of a middle ground. The bill signed by Governor Jerry Brown and proposed by Democratic leader Senator Darrell Steinberg waters down CEQA by exempting urban projects from parking and aesthetic (view-blocking) reviews, which have led to the most litigation, speeding the pace of litigation, and redefining how traffic impacts are determined.

Unfortunately, by squeezing in this reform to streamline the process for a Sacramento sports arena and keep the Sacramento Kings in the city, California missed a real opportunity to make meaningful reforms that would enhance the benefits of CEQA while also helping to address the openings for abuse or lack of clarity. This is part of a larger conversation: how do we use environmental protection to push sustainable development and innovation that will provide for a healthy and prosperous future?

As a Millennial looking far down the line, I want to think about how cities, communities, development projects, and sensitive ecological environments will hold up in the long run. We need development projects that will help usher in economic growth, bring jobs, cultivate vibrant communities, and more. But none of these goals can succeed unless we also aim for a healthy environment—one with clean air and water, with green spaces that allow local biodiversity to flourish and residents to lead healthy lifestyles, with transit and electricity systems propelled by clean fuels. By grounding regulations in our vision for the future, we can come closer to ensuring that regulations and development can work hand in hand. Environmental regulations can guide industry, provided that policymakers grant them the flexibility needed to make adjustments.

Melia Ungson is the Roosevelt Institute | Campus Network Senior Fellow for Energy and Environment.

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Policy Note: Can Say-on-Pay Curb Executive Compensation?

Sep 25, 2013

Download the policy note (PDF) by Susan Holmberg

In a new policy note, Susan Holmberg presents the key economic research on the measurable impacts of Say-on-Pay in both the U.S. and the U.K., the latter of which has had a version of Say-on-Pay in force for much longer.

Download the policy note (PDF) by Susan Holmberg

Of the few provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act that address governance of excessive executive compensation, the Say-on-Pay provision is the only one that the U.S. has actually implemented. Critics argue that Say-on-Pay has been a colossal failure in the three years that it has been in effect, and that very few shareholders feel strongly enough about CEO pay to vote against CEO pay packages.

In a new policy note, Susan Holmberg, Director of Research at the Roosevelt Institute, presents the key economic research on the measurable impacts of Say-on-Pay in both the U.S. and the U.K., the latter of which has had a version of Say-on-Pay in force for much longer. Drawing on this evidence, this paper argues that while Say-on-Pay alone will not slow the rise of CEO pay, the policy does have some measurable effect on CEO pay practices. Further, Say-on-Pay can enhance corporate governance practices by improving lines of communication between companies and their shareholders. Along with Say-on-Pay, it is critical that we pursue a range of policies that address the problems of executive compensation.

Read the policy note: "Can Say-on-Pay Curb Executive Compensation?" by Roosevelt Institute Director of Research Susan Holmberg.

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Policy Note: Will Crowdfunding Kickstart an Investment Revolution?

Sep 5, 2013

Download the policy note (PDF) by Georgia Levenson Keohane

In a new policy note, Roosevelt Institute Fellow Georgia Levenson Keohane examines the policy and political implications of peer-to-peer financing. In recent years, crowdfunding has emerged as a financing model that allows smaller funders to invest in projects and organizations in their early stages – particularly those that would otherwise struggle to obtain capital. Peer-to-peer funding experiments first emerged in the nonprofit sector, but have since expanded to the realms of for-profit investment and political activism.

Download the policy note (PDF) by Georgia Levenson Keohane

In a new policy note, Roosevelt Institute Fellow Georgia Levenson Keohane examines the policy and political implications of peer-to-peer financing. In recent years, crowdfunding has emerged as a financing model that allows smaller funders to invest in projects and organizations in their early stages – particularly those that would otherwise struggle to obtain capital. Peer-to-peer funding experiments first emerged in the nonprofit sector, but have since expanded to the realms of for-profit investment and political activism. The proliferation of crowdfunding models and uses requires a nuanced policy response, one that balances the imperative to support the growth of small businesses and new jobs with safeguards for investor protection.

Read the policy note: "Will Crowdfunding Kickstart an Investment Revolution?" by Roosevelt Institute Fellow Georgia Levenson Keohane.

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New Rule: Your Financial Advisor Should Actually Work for You

Aug 21, 2013Rachel Goldfarb

The DoL and SEC should implement their proposed changes to the ethical standards of the financial services industry that would ensure consumers get the best possible financial advice.

The DoL and SEC should implement their proposed changes to the ethical standards of the financial services industry that would ensure consumers get the best possible financial advice.

A long-discussed but never implemented policy change surrounding ethical standards for the financial services industry is hitting the news again. Both the Department of Labor and the Securities and Exchange Commission are considering new rules that would require stockbrokers and financial services providers to act as fiduciaries, which would make them required by law to act in the best interest of their client and to avoid conflicts of interest.

It would be nice if the people we trust to invest our money put us first, but that’s not always the case. With the exception of certified financial planners and Registered Investment Advisors, who are already fiduciaries, financial services providers are only required to steer clients into “suitable” products. The suitability standard doesn’t prevent advisors from pushing the products with the highest fees and kickbacks.  When financial advisors tie their financial success to the products they push, consumers aren’t likely to get the best advice.

A group of House Democrats recently signed on to a letter to the Department of Labor opposing this new rule. Erika Eichelberger reported that a financial industry lobbyist wrote the letter. She also noted that these 32 members of Congress, who include 28 members of the Congressional Black Caucus and 15 members of the Congressional Progressive Caucus, received $88,000 from the securities and investment industry. These members of Congress claim that the rules will limit access to low-cost investment advice in the communities they represent. Brokers agree that fiduciary status would reduce revenue to the point where they wouldn’t be able to service small accounts.

The possibility of reduced services isn’t a good enough reason to sacrifice standards. American workers aren’t saving enough for retirement as is: more than half of households have less than $25,000 in investments and savings, excluding their homes. High fee funds only make the matter worse. These households can’t afford financial services that cut into their savings. Our retirement systems have enough problems. Individuals should at least be able trust that their plans for retirement security aren’t being undermined by their advisor’s own interests.

Rachel Goldfarb is the Roosevelt Institute Communications Associate.

 

Financial advisor image via Shutterstock.com

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Why Carried Interest Reform Should Be a No-Brainer

Aug 19, 2013Lydia Austin

Carried interest, the share of profits that private equity fund managers receive, is currently taxed at the capital gains rate, but it should be treated as standard compensation.

Carried interest, the share of profits that private equity fund managers receive, is currently taxed at the capital gains rate, but it should be treated as standard compensation.

In recent months, there has been a growing consensus that the tax code is broken and must be reformed or overhauled. Unfortunately, that’s where the consensus ends. Politicians are loath to eliminate provisions that garner them support, and the result is that the tax code is riddled with small loopholes that end up costing big bucks. One of the failures of the tax code is the unequal treatment of similar activities, such as the tax treatment of carried interest. Although only a few people even know what carried interest is, this provision costs the government around $1.3 billion annually. That’s a big break for just a few people. The fault lies not with the individuals who take advantage of these provisions, but rather with the legislators who enacted them and today, fail to eliminate them.

Taxation of carried interest has been around since the implementation of subchapter K of the Internal Revenue Code, which governs the taxation of partnerships, in 1954. Though part of the tax code for over half a century, the taxation of carried interest only became a hot-button subject recently, when private equity firms and hedge funds rose in prominence in the financial sector.

Private equity and hedge funds manage an estimated $1 trillion each, and private equity raised around $240 billion in capital in 2006. With such a large amount of assets under management, legislators and policymakers have taken a closer look at the taxation of their earnings.

Carried interest (or profits interest) arises as part of a partnership arrangement. When a private investment fund is formed, it usually comprises two types of partners. Limited Partners (LPs) contribute capital to the investment fund. General Partners contribute knowledge of investments, some capital (usually 1-5 percent of the firm's assets) and manage the funds on a day-to-day basis. It is important to note that partnerships are pass-through entities, meaning profits are not taxed at the partnership level, but rather each partner is taxed individually.

General Partners are paid a management fee, usually around 2 percent of the fund's assets, for the day-to-day operations they oversee. This management fee is taxed at the ordinary income tax rate. When the fund turns a profit, LPs usually receive 80 percent of the profits (called capital interest), and GPs receive around 20 percent of the profits, sometimes not until a profit threshold (say, 7 or 8 percent) is reached. The share of the profits that the GP receives is called carried (or profits) interest, and is currently taxed at the capital gains tax rate.

Most private equity funds have a lifespan of 5-7 years, so the income gained during this time is applicable for favorable long-term capital gains tax treatment, as opposed to hedge funds profits, which usually constitute short-term capital gains. Both long- and short-term capital gains rates are lower than traditional income rates.

Many consider carried interest an unfair tax expenditure because it is taxed at the more favorable capital gains rate, instead of the usual income rate. The underlying issue is whether carried interest represents an investment in the partnership by the GP (in which case carried interest would be treated like capital interest), or if it constitutes compensation for services performed by the GP in managing the fund.

Those who believe carried interest represents compensation for management state that GPs play a fundamentally different economic role than LPs, since they are responsible for managing the funds. Further, they argue that carried interest is compensation that is not principally based on a return to the GP's own financial assets as risk. Compensation supporters argue that GPs act in the same manner as an investment bank, whose employees are taxed at ordinary income rates.

The alternate view is that GPs are being paid their share of the profits as a partner whose main activities are raising capital and investing it. In addition to contributing some financial equity to the firm, GPs contribute "sweat equity" - namely their management expertise. Supporters of this view argue that GPs act like entrepreneurs whose businesses are financed by third parties, and whose returns are taxed at capital gains rates. This is the position taken by current law.

It is interesting to note that there is no consensus as to the character of carried interest in countries around the world. Some tax carried interest as capital gain, some ordinary income, and some as an alternate form of income.

Currently, most view the grant of carried interest as a nontaxable event, as it may be difficult to value and thus cannot be considered "ordinary income" under the law. One option for reform would be to tax carried interest at the time of the grant. Under this scenario, when the GP receives carried interest, he would be taxed at ordinary income rates. Any further accumulation of profit would then be taxed at capital gains rates. This approach would require a trustworthy valuation system, and would be susceptible to large changes in taxable income as the assumptions behind the valuation system changed.

One of the most commonly suggested options is to tax carried interest at ordinary income rates when it is realized. This approach would recognize carried interest as compensation for services performed in managing the fund, and would be similar to the taxation of non-qualified stock options. Senator Levin has introduced legislation that would tax carried interest as ordinary income.

Finally, the "middle option" would be to tax the imputed interest on an implied loan the GP makes to the LPs. This option would tax part of the carried interest as capital gains and part of it as ordinary income. This option is a compromise, recognizing that GPs' returns are a mix of capital and labor inputs. It is, additionally, the most complex option.

As it stands now, the favorable tax treatment for carried interest serves as a giveaway to wealthy hedge fund and private equity managers. There is no doubt that a GP’s role in the fund is fundamentally different from an LP’s, yet they are given similar tax treatment. Additionally, some GPs manage to reduce their management fee (and thus reduce the amount that is taxed at ordinary income rates) and increase their share of capital gains compensation. And there is no reason they should not do so, given the tax provisions governing partnerships.

In treating carried interest as capital gains, the current tax code costs the government over $1 billion. Fortunately, legislators still have the ability to reform this provisio, and take a stand against giveaways to the wealthiest among us. By taxing carried interest at the ordinary income rate, the tax code would recognize the growth of the financial services industry and the role of professional fund managers. With tax reform on the horizon, this should be a no-brainer.

Lydia Austin is an alumna of the Roosevelt Institute | Campus Network and was the Campus Network's Senior Fellow for Economic Development for the 2012-13 academic year. Lydia recently co-wrote a white paper, "Fixing a Hole," with Roosevelt Institute Director of Research Susan Holmberg.

 

Happy man with money image via Shutterstock.com

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Daily Digest - August 16: Even Federal Jobs Aren't Always Good Jobs

Aug 16, 2013Rachel Goldfarb

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How President Obama Could Move Millions Into The Middle Class (Our Future)

Click here to receive the Daily Digest via email.

How President Obama Could Move Millions Into The Middle Class (Our Future)

Roosevelt Institute Senior Fellow Richard Kirsch presents a simple solution for shifting over two million workers into living wage jobs. By executive order, the President could require that workers on federal contracts get better wages and paid sick days.

The Light And Dark of Social Entrepreneurship (CSRwire)

Francesca Rheannon interviews Roosevelt Institute Fellow Georgia Levenson Keohane about the challenges of using private money for social needs. Georgia is concerned with scale, and whether a social mission can stay in the forefront as an enterprise grows.

ALEC Convention Met With Protests in Chicago (The Nation)

Micah Uetricht reports on protests against the ALEC convention, organized by a coalition of labor, community, and environmental groups. They hope that the protesters will shine a brighter light on ALEC's far-right austerity agenda and influence on legislators.

New Conservative Plan: Repeal Obamacare or We'll Default on the National Debt (Slate)

Matt Yglesias looks at the various ways the GOP has created debt ceiling crises in recent years. He doesn't think there's much to worry about in the current threat, but won't dismiss the possibility of this debt ceiling crisis turning into something nasty.

Dems Defy Obama on Mortgage Protections (MoJo)

Erika Eichelberger critiques the thirteen Democrats who joined Republicans to cosponsor bills that would demolish new Consumer Financial Protection Bureau mortgage rules, but cannot explain why they want to allow sub-prime mortgages to continue.

Houston Rockets Pre-K to Top of the Priority List (TAP)

Abby Rapoport examines a new plan in Houston to expand early childhood education. Proponents are pushing a ballot initiative to increase property taxes by one hundredth of one percent to fund daycare teacher training and they're finding broad support.

The Many, Many Jobs That Won't Earn You Enough to Live in Your City (The Atlantic Cities)

Emily Badger thinks that many of these jobs are necessary for a city's function, including bank tellers, fire fighters, janitors, and school bus drivers. If these workers can't afford rent in their cities, who is going to do these jobs?

Why Are Walmart Stores Underperforming? Blame Their Terrible Wages. (The Daily Beast)

Daniel Gross questions why Walmart's same-store sales fell this quarter. He suggests that Walmart pays such low wages that their employees can't afford to shop there as much, and recent protests against Walmart and other low-wage employers can't help.

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