Raising the stakes of gorgeousness

It is in a nation’s interest to foster entrepreneurship — but carried interest is not entrepreneurship.

Hmm, well, mebbe. But, from Snippa:

It is entirely true that the vast majority of the activities of hedge funds do not represent entrepreneurship, largely because those who claim that this is the case actually have almost none of their own personal money at stake in the enterprises that they manage.

But carried interest is, by definition, that stake that the hedgies have in what they’re doing. It’s sweat equity.

Hey, sure, mebbe it shouldn’t be taxed as equity – I think it should but so what? – but to declare that it’s not a stake when the definition is that it’s a stake is to raise the absurdity of the analysis to new levels of gorgeousness.

The simple fact is that entrepreneurship is something that the vast majority of those who actually espouse its virtues have never partaken in, whether those espousing be most right-wing politicians, or the leaders of large business, or those who work for organisations dedicated to this promotional activity, such as the CBI. Right-wing think tank staff almost universally fall into the same category.

Presumably running the shadowy international scandium oligopoly ain’t entrepreneurship either. Because reasons.

Since 2003 (the years at City, University of London excepted) I have been a social entrepreneur, taking not dissimilar risks to create ideas that I believe of social advantage. And what all that experience tells me is that what is essential for entrepreneurship to flourish is a strong, enforced, and fair tax system that creates a level playing field where each contributes according to their ability to pay.

Now that does make sense. Given that all of his income – directly or indirectly – over those years has come either from taxation itself or people avoiding it through charitable funds…..

That is not what we have in the UK at present. The highest marginal rate of tax in the UK at this time is paid by those on below average pay.

The lowest marginal rates of tax are frequently paid by those with the highest earnings

Uh, cool. Then we should lower taxes on the poor then, right? Although when I did campaign, successfully I might add, for that rise in the personal allowance I was told by Ritchie, and others, that this was a bad idea. Ho Hum.

11 thoughts on “Raising the stakes of gorgeousness”

  1. I’ve noticed a gradual movement away from “tax rates” to “marginal tax rates”, as though – like dental plaque – the former has been solved and a new problem has to be invented. Tartar!!!!

  2. Far be it from me to agree with the blustering fool, Murphy, but he’s not wrong that carried interest is not the entrepreneur’s risk share, unless you are talking about the risk of not making out like a bandit. The punt is made by the limited partners, with a bung – carried interest – to the general partners.

    Where he – and you – are wrong is in thinking this is a hedge fund thing. It isn’t generally. Private equity is its domain and a more destructive and useless form of financial investment is hard to conjure up: parasitical, with priviledged financing advantages. Still, it provides a fruitful living for various of my family, so I can’t complain too much.

  3. The highest marginal rate of income tax is, I believe, 62.5%. Paid by those who earn between £100,000 and £125,000 annually, due to the way the personal allowance is withdrawn on those employees.

    What I think he’s trying to get at with his first claim is that the marginal rate of tax ** plus the impact of benefits withdrawal ** is highest for those earning below the average. I don’t know whether that’s true. It’s plausible. But it’s a very different claim to the one he’s actually making, which is boss-mode untrue.

    His second claim is illogical. The marginal rate of tax is the rate paid on the next pound you hypothetically earn. He’s saying that the lowest rate is paid by those with the highest earnings. No, those with the highest earnings will pay 45% on the next pound they earn. Whereas someone earning below the personal allowance level will pay 0% on the next pound they earn. It’s just not illogical, it’s a flat-out lie.

  4. Yeas to all that. He’s got confused by marginal and average tax rates. The average tax rate for the poor can be very high indeed.

  5. You and he are conflating hedge funds and private equity funds. Carried interest very very rarely arises in hedge funds in the UK, because they do not invest for the medium to long term and therefore do not fall within the scope of the carried interest regime.

    Fees from hedge funds tend to be taxed at the recipient’s marginal income tax rate already (probably 45%). Carried interest is taxed at 28% on the entire amount arising (for a higher rate tax payer)

    Its also nonsense to claim that hedge fund or private equity fund managers “have almost none of their own personal money at stake in the enterprises that they manage”. Its normally the first thing a third party investor looks at and only a stupid one would invest on that basis

  6. The simple fact is that entrepreneurship is something that the vast majority of those who actually espouse its virtues have never partaken in
    Whereas grant-grubbing fist typers are all about the entrepreneurialism.

    a more destructive and useless form of financial investment is hard to conjure up
    It is just a way of funding things. Not all PE firms are bottom-feeding company rapers. Most of them are far less parasitical than the state drones latched on to the sore tit of the taxpayer.

  7. Let’s not forget that the rotund Prof was once engaged in some serious entrepreneurial business activity, importing Trivial Pursuit to the UK via Ireland. I understood he admitted this conferred tax advantages.

    You may consider routing transactions unnecessarily through a third country for a tax benefit to be abusive tax avoidance, I will reserve judgment.

  8. With the possible exception of setting up his accountancy firm in the 1980’s the idea of Ritchie as an entrepreneur is laughable. He may have been an accountant to some genuine entrepreneurs, but he can’t have had any serious equity in their businesses, or he wouldn’t be hustling for grants or appealing for donations on his blog.

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