Carried interest

With the Romney kerfuffle over releasing his income tax the idea of carried interest will come into the news. Carried interest is a tax gimmick that helps investors of hedge funds. Fund partners are paid under a system called 2 and 20. They get 2% in fees and 20% of the profits. The 2% is received as wages and taxed as ordinary income rates with a high of 35%. The profits are considered capital gains and taxed at 15% with no withholding for payroll tax. I believe carried interest is a loophole for rich people and should be eliminated. Recall that the reason for the lower rate on capital gains is that a rich person first pays 35% income tax on his earned income and then he re-invests that and pays another 15% on the profits from his investment. Recall that hedge funds are when a group of wealthy individuals put their money in a pot to invest. Companies, often times, start-up companies, who cannot get financing from banks because they are too risking go to hedge funds for money. That is why the investors ask for 20% return so they can balance out the risk. Because of the risk many of these companies will go broke and the hedge fund can lose money. I believe that carried interest is payment to the partners for their expertise and should be taxed as wages. Others see this as return on investment and thus taxed as capital gains. In either case Romney is following the current tax law.