Carried interest

Venture capitalist are individuals and often times a group of individuals who are willing to put up capital for a business for equity in the business. It is often used by start up businesses who cannot get money through the normal capital markets. A well established business can go public and sell stock to get money but a new business will go to venture capitalist for money. Here is an example of how it works. An individual starts the process and is known as the general partner (GP) and then he solicits money from other investors called limited partners (LP). Assume the partnership offers $1000 with a 20% carried interest agreement. Some years later they close out the deal by selling their stocks for $5,000. The GP will receive 20% of the $4,000 profit or $800. The investors get the remaining $3,200 plus the initial $1,000 investment or a total of $4,200. Hopefully the business is up and running and will continue to create profits. The interesting part of this is that the GPers earnings of $800 is taxes at capital gain rates and this is called carried interest. A smart investor can use another part of the tax code to eliminate the tax completely. The Inflation Reduction Act was in jeopardy as it contained a clause that would eliminate the carried interest loop hole and this money would be taxed at ordinary rates. Senator Sinema was not going to vote for this bill but changed her mind when the clause to get rid of carried interest was removed from the Act. This continues the tax break to the rich people who act as venture capitalist. The confusing thing is that Senator Sinema is a democrat and she held out to give a tax break to very wealth people. Why did she do this. Will she receive something from these rich people. Will she receive something from the administration for passing this bill. Sinema, the last Democratic holdout on the bill, said she negotiated the removal of a provision to increase taxes on carried interests targeting wealthy investors, resolving a key difference that had held back her support.