We're all becoming tax experts now. You can't pick up a paper these days without wading into the arcane topic of how corporations and partnerships pay their taxes. I waded into this a couple months ago when I was researching an article on the spat between venture capitalists and buyout barons, both of whom typically structure their firms as private equity partnerships. Last week Congress proposed a law (already known as the "Blackstone tax") that would no longer allow publicly traded private-equity firms to avoid paying corporate taxes. In a new piece on Fortune.com, the one and only Shawn Tully analyzes all this, coming to the conclusion that none of it is very promising for the continuation of the so-called golden age of private equity.
My favorite snippet of all, though, is a quote in the New York Times last week by Robert Rubin, the Citigroup (C) official and former Treasury secretary, who basically said all his rich guy pals should be taxed more. He said:
“It seems to me what is happening is people are performing a service, managing peoples’ money in a private equity form, and fees for that service would ordinarily be thought of as ordinary income,” Mr. Rubin said. He made clear that he was not a tax expert but said the issue should be looked at “with great seriousness” by the appropriate tax committees in Congress.
What I loved about this quote is how Rubin captured the spirit of what's going on. If you spend too much time talking to tax experts you learn that there's at least a logical consistency to the rule that allows partners to claim long-term gains on their partnership profits. But common sense, the guideline being used by as august a figure as Rubin, simply suggests otherwise: These guys are investing other people's money and when they do it well they pay a lower tax rate than you and I (and Bob Rubin) do. Something's got to give. Tax the rich!