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View Diary: Working Stiffs and Executive Compensation, (or somebody's pissing on me and telling me it's raining) (15 comments)

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  •  hnichols - long term capital gains rate is 23.4% (2+ / 0-)
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    hnichols, johnny wurster

    for high income earners. Hedge fund managers' salaries are taxed at ordinary income rates, now 43.4% (including Medicare) for hedge fund managers. It's what we would think of as their bonus that qualifies for long term capital gains. Based on a Tax Court case in the early 1970's the allocation of profits and losses in partnerships is determined by the parties. The managers of investment partnership earn an equity interest in the underlying partnership assets and when they are sold all partners have their gains taxed at capital gains rates.

    "let's talk about that"

    by VClib on Tue Feb 19, 2013 at 02:37:42 PM PST

    [ Parent ]

    •  You're correct, and (1+ / 0-)
      Recommended by:
      hnichols

      The major portion of their compensation packages is always in the form of an instrument liable to capital gains taxation, rather than as straight income compensation.  That structuring of executive compensation has had one of the worst effects we've had come out of the minds of the bean counters on Wall St.  The only incentive the execs have is to keep the stock value up long enough for them to cash in.  I won't even mix the Too Big To Fail conundrum into the mix.

      •  Actually I'm not sure those capital gains rates (1+ / 0-)
        Recommended by:
        hnichols

        stated are correct.  From a google search:

        Tax Rate on Short-Term Capital Gains

        Capital gain income from assets held one year or less is taxed at the ordinary income tax rates in effect for the year, ranging from 10% to 35%.

        Tax Rate on Long-Term Capital Gains

        Capital gain income from assets held longer than one year are generally taxed at a special long-term capital gains rate. The rate that applies depends on which ordinary income tax bracket you fall under.

            Zero percent rate if your total income (including capital gain income) places you in the ten or fifteen percent tax brackets.
            15% rate if your total income (including capital gain income) places you in the twenty-five percent tax bracket or higher.

      •  The difference is that partnership managers (1+ / 0-)
        Recommended by:
        johnny wurster

        only earn the incentive compensation if the underlying partnership assets are actually sold, and a gain registered. The investors receive 80% of the profits and the managers 20%.

        For executive compensation in corporations you are right that the primary compensation is equity compensation. The reason is that only the first $1 million of salary is deductible for tax purposes. The difference between equity compensation for corporate executives is that ALL of the equity compensation for corporate executives is taxed at earned income rates of 43.8%. It is NEVER eligible for long term capital gains treatment, unlike investment partnership managers.

        "let's talk about that"

        by VClib on Tue Feb 19, 2013 at 03:13:43 PM PST

        [ Parent ]

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