How to Tax Mitt Romney

Document Type

Article

Publication Date

5-28-2012

Abstract

Under current law, investment fund managers can pay taxes on their carried interest at long-term capital gains rates. They argued that carried interest represents an investment return and should therefore be taxed like investment income. Critics respond that carried interest looks more like compensation for services, not investment, and should be taxed at ordinary rates. Neither side looks at why investment income is taxed at a preferential rate and whether those justifications also apply to carried interest. In this report, Brunson demonstrates that the justifications for preferential rates do not apply to carried interest and proposes that carried interest instead be taxed using a modified mark-to-market approach.

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