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View Diary: FLASH: Mitt knows nothing about business taxation (165 comments)

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  •  That diary adds another important point: (29+ / 0-)

    that partnerships and LLCs, unlike corporations, are pass-through entities for federal tax purposes; and at least as far as I know, based on SEC filings I've reviewed, relatively few of the Bain companies are actually corporations. And since Romney is acutely tax-conscious, I don't think it's presumptuous to say that there is no way Romney's oblivious to that fact. IMHO, he just threw that corporate double-taxation concept out there to see if it would stick.

    Thanks for the link to that diary!

    •  and then there are S-Corporations (7+ / 0-)
      Recommended by:
      kyril, basquebob, entrelac, ER Doc, dfe, elwior, ferg

      which are corporations but are also pass-thrus.

      LLCs can be taxes as S-Corporations or C-Corporations - its a choice that they have to elect.  So not all LLCs are pass-thrus - just those that do taxes like an S-Corp.

    •  where4art - nearly all the Bain Capital (7+ / 0-)

      investments are in C corporations. I have had a chance to look at the portfolio detail and few of them are organized as pass through entities. However, very few private equity portfolio companies pay much in federal income tax regardless of how they are organized because they have so much interest expense that they don't have taxable income.

      "let's talk about that"

      by VClib on Mon Sep 24, 2012 at 12:30:17 PM PDT

      [ Parent ]

      •  Two different things! (6+ / 0-)
        Recommended by:
        kurt, ER Doc, dfe, elwior, ferg, concernedamerican

        You're right that most of the portfolio companies are C corporations -- but I was talking about the Bain investment vehicles, which were primarily general and limited partnerships in the '90s and now include a lot of LLCs; Romney's income stream is through his interests in those companies.

        •  where4art - my apology (5+ / 0-)
          Recommended by:
          where4art, saluda, ER Doc, ferg, ozsea1

          I misread your comment. ALL of the Bain Capital investment vehicles in the US and offshore are structured as partnerships, which is universal in the private equity business. The reason is that the investment partnerships are regulated by a separate set of rules (as distinct from mutual funds) and are taxed under partnership tax law which for the last 40 years has treated carried interest as capital gains.

          "let's talk about that"

          by VClib on Mon Sep 24, 2012 at 01:56:43 PM PDT

          [ Parent ]

      •  What does it matter whether (2+ / 0-)
        Recommended by:
        ER Doc, elwior

        the companies that Bain invests in are incorporated or not?  Bain itself is not incorporated.  Therefore, it's profits are not "double taxed."  

        A C Corp like Goldman Sachs invests in plenty of other C Corps as well.  But they still have to pay the corporate tax rate regardless.  Bain does not because its not a C Corp.  

        •  cheerio - they would be double taxed (1+ / 0-)
          Recommended by:
          Clem Yeobright

          if a Bain Capital portfolio company declared a dividend, once at the C corp level and once at the investor level. It would miss the partnership level, because there is no tax liability there, but would still be double taxed.

          "let's talk about that"

          by VClib on Mon Sep 24, 2012 at 01:59:24 PM PDT

          [ Parent ]

          •  Not sure I understand... (0+ / 0-)

            The fact that it misses the partnership level means it's not double taxed.  

            •  cheerio - if you own a security in a partership (2+ / 0-)
              Recommended by:
              Clem Yeobright, ferg

              it's taxed just that same as if you owned it directly. So if you own a share of Bristol Meyers Squibb and it sends you a dividend the corporation (BMS) has paid a corporate level income tax on that dividend as part of its profits and once it is received by you you owe income tax on it. If you were an investor in a partnership that owned BMS stock the exact same thing would happen, both BMS paid income tax, and you would owe an income tax. The partnership as a "pass through" entity has no tax liability. All of the taxes are owed by the owners of the partnership, not the partnership itself.  I hope that helps.

              "let's talk about that"

              by VClib on Mon Sep 24, 2012 at 02:31:26 PM PDT

              [ Parent ]

              •  So understanding this, what do you think of (0+ / 0-)

                Mitt's argument that the money is being taxed twice?  

                •  I agree that dividends are taxed twice (4+ / 0-)

                  but the notion that capital gains are taxes twice is complete nonsense.

                  "let's talk about that"

                  by VClib on Mon Sep 24, 2012 at 04:15:49 PM PDT

                  [ Parent ]

                •  It's Taxed Once - That the entire point (4+ / 0-)
                  Recommended by:
                  ferg, VClib, ozsea1, elwior

                  My spouse and I have an S-Corp (we are are the only employees) specifically to avoid having to pay taxes on the same money twice. All of the profits from the corporation flow through to our W2s where we pay tax on it exactly the same way as we would if we had taken it as salary. We do however avoid SS and Medicare on the portion that is taken as profit.

                  That was the original idea behind LTDs, Partnerships and S-Corps. It is meant for people like us who work for our own company and all of the company's revenue is our income. The downside is unlike a C-Corp you can't leave any profits in the company. All profits has to be paid out by the end of each year.

              •  I still don't see it that way... (0+ / 0-)

                Like I mentioned before, there are plenty of C-Corps that invest in other C-Corps.  If Goldman Sachs got a dividend from Disney, GS would normally still have to pay the 35% corporate tax rate on 20-30% of the Disney dividend.  Then if GS pays a dividend to its investors, their investors will have to pay again.  A private company like Bain would totally skip out on the bolded step above.  So on dividends, Bain pays less tax than a C-Corp does.

                Now let's look at capital gains.  A C-Corp has to pay a 35% corporate tax rate on capital gains from their investments.  A private company like Bain does not.  The capital gains go directly to the partners.  So again, Bain saves on taxes.  

                So to say that Bain is also subject to double taxation is not accurate because it casts Bain in the same light as a C-Corp, when in fact Bain is subject to significantly less taxation than a C-Corp is.  

                •  cheerio - the Bain Capital investment funds (1+ / 0-)
                  Recommended by:
                  Clem Yeobright

                  are structured as partnerships so the BC entities aren't subject to double taxation and dividends from private equity portfolio companies are very rare. However, if a portfolio company did pay a dividend it would be double taxed, once at the corporate level and once by each investor due to the flow through character of the partnership.

                  I am not sure you are understanding this subject. Bain Capital pays no taxes because it isn't a corporation and all of its profits flow through to its owners who pay the taxes.

                  "let's talk about that"

                  by VClib on Mon Sep 24, 2012 at 07:31:23 PM PDT

                  [ Parent ]

                  •  We'll just have to agree to disagree on this (0+ / 0-)

                    It's true that I don't understand what you're trying to say on this subject.  But I think we both agree that Romney is incorrect with his "double taxation" talk, which has been my point all along.  

                    •  cheerio - dividends are double taxed (0+ / 0-)

                      that's just a fact. From a policy point of view you can argue that it is fair and is also historical. We have always double taxed dividends. Capital gains are not double taxed.

                      "let's talk about that"

                      by VClib on Tue Sep 25, 2012 at 06:53:31 AM PDT

                      [ Parent ]

                      •  There is double taxation on retained earnings (0+ / 0-)

                        Retained earnings is what is left from income in the company after taxes and dividends.  Economically, this portion of a capital gain is double taxed.

                        A simple example of this is a company stock that is purchased for $100.  A year goes by, no dividend is paid and the cash in the company increases by $10/share after paying taxes on $15.38 in pre tax profits.

                        Essentially, the company is the same as at the beginning of the year except that it now has $10/share more in cash.

                        If the share owner were now to sell her shares at $110/share, capital gains tax would be due on the $10 gains that resulted from the increase in cash after paying taxes on income.

                        So essentially, to avoid double taxation, an adjustment is needed, such as increasing the investors cost basis by the retained earnings.

                        The most important way to protect the environment is not to have more than one child.

                        by nextstep on Tue Sep 25, 2012 at 08:35:43 AM PDT

                        [ Parent ]

                        •  nextstep - we often agree, but don't on this issue (0+ / 0-)

                          If we could isolate stock appreciation to a single variable you might have a case, but I don't think that changing the basis of every share for retained earnings is appropriate and certainly isn't feasible.

                          "let's talk about that"

                          by VClib on Tue Sep 25, 2012 at 10:27:05 AM PDT

                          [ Parent ]

          •  That is making the generous assumption (1+ / 0-)
            Recommended by:

            that said C corporation actually paid any tax.  But of course we know that there are many, many C corporations that manage to pay dividends but little tax.

            Thus, Romney's mouthing off about "double taxation" is just gibberish.

            "Well, I'm sure I'd feel much worse if I weren't under such heavy sedation..."--David St. Hubbins

            by Old Left Good Left on Mon Sep 24, 2012 at 02:56:38 PM PDT

            [ Parent ]

            •  In addition it's the rare private equity (3+ / 0-)
              Recommended by:
              ferg, ozsea1, Clem Yeobright

              portfolio company that pays a dividend. As part of the covenants with their debt holders they can't pay dividends. In addition few of them pay any federal income taxes because their interest payments create tax losses.  

              "let's talk about that"

              by VClib on Mon Sep 24, 2012 at 04:19:33 PM PDT

              [ Parent ]

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