Meet your new thread, same as the old thread.

[sgtclub]

Originally posted by Greedy,Greedy,Greedy
You're not answering my question.

As to yours, I view the math as about as meaningful as the folks who calculate the odds of who will win the next Presidential election.

All I am suggesting is that when someone starts a company, any company, and puts nominal cash in, even no cash, and then builds up a business over a long period of time, that business is a capital asset. Whether they take a bank loan or do an equity financing to get more capital doesn't change the fact that the business is a capital asset as a whole. (note that this is different than the points assuming we have a partnership with flow-through taxation - this argument is on your turf and looking at the partnership as an entity).

The fact that someone has built up many companies before and are quite good at it, doesn't change that fact.

Damn, for once GGG sounds rational. Maybe it's just in comparison to Wonk.

[Tyrone Slothrop]

Bush:

• "The same people that attacked us on September the 11th is the crowd that is now bombing people, killing innocent men, women and children, many of whom are Muslims, trying to stop the advance of a system based upon liberty."

Which is worse: That he believes this, or that he doesn't?

[Greedy,Greedy,Greedy]

Originally posted by sgtclub
Damn, for once GGG sounds rational. Maybe it's just in comparison to Wonk.

If it makes you feel better, I'd happily eliminate the entire benefit of the capital gains rate and tax it at ordinary income rates.

I just don't want to do so selectively in a way that will dry up venture investment. Like Clinton, I would favor venture investment.

[taxwonk]

Originally posted by Greedy,Greedy,Greedy
You're not answering my question.

As to yours, I view the math as about as meaningful as the folks who calculate the odds of who will win the next Presidential election.

All I am suggesting is that when someone starts a company, any company, and puts nominal cash in, even no cash, and then builds up a business over a long period of time, that business is a capital asset. Whether they take a bank loan or do an equity financing to get more capital doesn't change the fact that the business is a capital asset as a whole. (note that this is different than the points assuming we have a partnership with flow-through taxation - this argument is on your turf and looking at the partnership as an entity).

The fact that someone has built up many companies before and are quite good at it, doesn't change that fact.

I understand what you are saying, and I disagree with you. What the PEs are doing is not building a business. They are managing money. They buy businesses built up by other people, then they sell them, usually at a profit. Sometimes, they send in operating partners to clean the business up a bit. Sometimes they just infuse a little money. Sometimes they just flip them.

But they are not being compensated for running their portfolio companies. They are being compensated for making their investors money.

We may agree to disagree. But you have yet to say anything that convinces me that the model is any different than what I just described.

[taxwonk]

Originally posted by Greedy,Greedy,Greedy
This sounds comfortable.

It isn't comfortable or not comfortable. I work for a Big 4 firm in their transaction advisory practice. It's what I do.

[taxwonk]

Originally posted by Greedy,Greedy,Greedy
If it makes you feel better, I'd happily eliminate the entire benefit of the capital gains rate and tax it at ordinary income rates.

I just don't want to do so selectively in a way that will dry up venture investment. Like Clinton, I would favor venture investment.

This is something we do agree about. I've been on record for years as being opposed to tax breaks on capital gains.

But if you think that taxing carried interests as compensation is going to dry up PE, you're not remembering your history very clearly. This is exactly the same issue that was fought over profits interests in real estate and leasing limited partnerships in the 80s and 90s.

[sebastian_dangerfield]

Originally posted by Greedy,Greedy,Greedy
You know, the crazy thing is this may not end up generating any revenue.

Take the basic transaction: A group of people invest $10 million in Company A, hope to realize a 5x return and get $50 million. They're going to split it, with the people who put up $9.9 million will take about 80% of the $40 million gain and the people who managed the fund will take about 20%.

So, pre-bill, there is a $10 million investment and $40 million gain. You tax the $40 million gain at capital gains rates.

Now, you say to the guys managing the investment, wait, we think you're providing services, so we're going to tax your piece (about $8 million) at ordinary rates.

Well, the guys now structure this so they get a fee for $9.6 million. Why $9.6? They gross it up for the difference between about 15% and 35% tax rates. Why do the investors agree? Because they get to deduct the full $9.6 from their ordinary income. So, at the end of the day, there is still $40 million in capital gains, but there is also $9.6 million in ordinary income and a $9.6 million deduction.

There some chance of a gains/income mismatch generating some money, and some chances that the deduction would accrue to exempt orgs that can't use it, but, trust me, there will be ways to make sure the deduction gets used and the gross up occurs so that we end up in pretty close to the same place.

By the way, I think this is just more Pavlov. The R congress enacted a bunch of silly stuff post-Enron because they had to do something; the D congress may just do some of the same. But, if there were a Clinton in the corner office, there would be more thought given to the tax policy issues involved (as there was during his term). And Clinton was very good to the venture boys.

Pavlov indeed. That we're debating the few billions people like Schwartzman keep, the Federal Government wastes and loses multiples of his worth every single day.

Go onto any website and compare the numbers we wste on pork every day to the numbers we lose to private equity's shrewd tax structuring.

It's a joke we're even having this debate.

[Greedy,Greedy,Greedy]

Originally posted by taxwonk
It isn't comfortable or not comfortable. I work for a Big 4 firm in their transaction advisory practice. It's what I do.

OK, I'm just an asshole sometime. (Yeh, it's what I do.)

[Greedy,Greedy,Greedy]

Originally posted by taxwonk
But if you think that taxing carried interests as compensation is going to dry up PE, you're not remembering your history very clearly. This is exactly the same issue that was fought over profits interests in real estate and leasing limited partnerships in the 80s and 90s.

I'm not worried about drying up the current mega-deals mainly funded by the hot debt market; I am worried about further drying up the early stage venture deals that are already struggling.

A comparison to real estate is, um, perhaps unfortunate at this point in time. It's not exactly a thriving sector.

[Greedy,Greedy,Greedy]

Originally posted by taxwonk
I understand what you are saying, and I disagree with you. What the PEs are doing is not building a business. They are managing money. They buy businesses built up by other people, then they sell them, usually at a profit. Sometimes, they send in operating partners to clean the business up a bit. Sometimes they just infuse a little money. Sometimes they just flip them.

But they are not being compensated for running their portfolio companies. They are being compensated for making their investors money.

We may agree to disagree. But you have yet to say anything that convinces me that the model is any different than what I just described.

I have to say, there's not much of this that hangs together logically for me. This analysis is riddled by false dictomies (like the idea that they are either running portfolio companies or making investors money - these are related elements!) and assumptions (like that they are being "compensated" for doing one or the other - the carry is, philisophically, a piece of the action, a way to allign interests between investors and management - just like the founder's stock others get).

But if you think what they do is equivalent to a mutual fund manager, you have to be fairly far from the boards of those portfolio companies, where these guys may be a royal pain in the ass much of the time, but where they are clearly doing something fairly intensive.

[Not Bob]

Originally posted by SlaveNoMore
The comic book collection.

And his collection of bobbleheads from the '93 Phillies.

Dibs on Lenny Dykstra!

[taxwonk]

Originally posted by Greedy,Greedy,Greedy
I'm not worried about drying up the current mega-deals mainly funded by the hot debt market; I am worried about further drying up the early stage venture deals that are already struggling.

A comparison to real estate is, um, perhaps unfortunate at this point in time. It's not exactly a thriving sector.

Most of the early stage venture deals I see tend to be funded with preferred stock and the VCs inject capital and don't buy the company outright. The managers of those funds may sit on the boards of the businesses in their portfolio, but they aren't exactly "building the business."

[taxwonk]

Originally posted by Greedy,Greedy,Greedy
I have to say, there's not much of this that hangs together logically for me. This analysis is riddled by false dictomies (like the idea that they are either running portfolio companies or making investors money - these are related elements!) and assumptions (like that they are being "compensated" for doing one or the other - the carry is, philisophically, a piece of the action, a way to allign interests between investors and management - just like the founder's stock others get).

But if you think what they do is equivalent to a mutual fund manager, you have to be fairly far from the boards of those portfolio companies, where these guys may be a royal pain in the ass much of the time, but where they are clearly doing something fairly intensive.

When I say thatt PE managers are being compensated for making money rather than running the portfolio companies, I mean that is what their investors pay them for. The investors don't generally give a shit what specific companies the funds invest in, as long as they make money. Witness the growth of the blind pools that PE funds are opening up now.

[Tyrone Slothrop]

• A Georgia man is scheduled to be executed by lethal injection on Tuesday for killing a police officer in 1989, even though the case against him has withered in recent years as most of the key witnesses at his trial have recanted and in some cases said they lied under pressure from police.
  
  Prosecutors discount the significance of the recantations and argue that it is too late to present such evidence. But supporters of Troy Davis, 38, and some legal scholars say the case illustrates the dangers wrought by decades of Supreme Court decisions and new laws that have rendered the courts less likely to overturn a death sentence.
  
  Three of four witnesses who testified at trial that Davis shot the officer have signed statements contradicting their identification of the gunman. Two other witnesses -- a fellow inmate and a neighborhood acquaintance who told police that Davis had confessed to the shooting -- have said they made it up.
  
  Other witnesses point the finger not at Davis but at another man. Yet none has testified during his appeals because federal courts barred their testimony.
  
  "It's getting scary," Davis said by phone last week. "They don't want to hear the new facts." . . .
  
  At the heart of Davis's difficulties is a law passed by Congress and signed by President Bill Clinton in the wake of the Oklahoma City bombing -- the Antiterrorism and Effective Death Penalty Act of 1996.
  
  The legislation was aimed at bomber Timothy J. McVeigh but has had far broader consequences: It limits the reasons for which federal courts can overturn death penalty convictions. In Davis's case, it has helped block the exploration of witnesses' statements that they had lied at trial. . . .
  
  The Burger King where the shooting happened is next to a Greyhound bus station, on a ragged edge of this city's touristy historic district. As the restaurant was closing at 1 a.m., a fight over a beer was erupting in the parking lot between a homeless man named Larry Young and another man who, some witnesses said, threatened to shoot him.
  
  After the man pistol-whipped Young, a police officer doing an off-duty shift in uniform as a security guard came out. The officer told the man to halt, witnesses said. Before Officer Mark A. MacPhail could unholster his gun, the man shot him once in the chest, then once in the face.
  
  Lacking a gun or other physical evidence, police were forced to rely on witness accounts to determine the shooter.
  
  Davis and a friend were at the Burger King that night; so were several others. After the shots were fired, they scattered.
  
  In the hours after the shooting, several people at the scene told police that it was too dark, or that it happened too quickly, to know who was who.
  
  But the day after the shooting, a person at the parking lot that night, Sylvester "Red" Coles, came to the police with a lawyer. Some witnesses would later say that Coles was the shooter. But in his meeting with police, Coles implicated Davis.
  
  A manhunt for Davis began. He turned himself in to the police four days later.
  
  At the same time, police were working the streets, asking anyone who might have been there, or who knew Davis, to talk.
  
  "The police came over here four or five times," said Jeffrey Sapp, 38, a neighborhood acquaintance of Davis. "They said, 'You know, your friend is on the run, so he must be guilty.' They said, 'If you don't talk, we can take you to jail for withholding evidence.' "
  
  Sapp eventually told them that Davis had bicycled by his house and confessed to shooting MacPhail.
  
  "It was a lie," Sapp said.
  
  Other key witnesses have told a similar story -- that police prodded them to implicate Davis. The affidavit from Darrell Collins, the friend who was with Davis that night, was typical.
  
  "I told them it was Red and not Troy who was messing with that man, but they didn't want to hear that," Collins, who was 16 at the time, said in his 2002 statement. "The detectives told me, 'Fine, have it your way. Kiss your life goodbye because you're going to jail.' After a couple of hours of the detectives yelling at me and threatening me, I finally broke down and told them what they wanted to hear."
  
  Adding to the confusion, the Georgia attorney general's office, which later looked into the case, portrays Coles as threatening to shoot the homeless man; the district attorney who tried the case has repeatedly said that Davis made the threat.
  
  In late August 1991, a jury convicted Davis in the slaying. He was sentenced to death. . . .
  
  "I just think they made a mistake in the investigation," Davis said by phone last week. "I'm just trying to hold up. . . . I'm trying to maintain my faith that God will step in and soften the judge's heart."

WaPo

[SlaveNoMore]

by Tyrone Slothrop [list]At the heart of Davis's difficulties is a law passed by Congress and signed by President Bill Clinton in the wake of the Oklahoma City bombing -- the Antiterrorism and Effective Death Penalty Act of 1996....

This is a typo, right?