3 ms·

Thats not the same thing. Imagine there is a 3rd person whos whole job will tell you that they "know" when to sell the restaurant. For this, they will charge a

by useful 5y ago

Thats not the same thing. Imagine there is a 3rd person whos whole job will tell you that they "know" when to sell the restaurant. For this, they will charge a 1%/year flat fee based on the current value of the business. They'd average 15k/yearly for 10 years. They also charge carried interest on your paper gains, so 10% performance on your 100k/year average gain, another 10k/year. They are effectively making a salary for labor but only paying 0-20% on 25k/year from our business depending on how many other clients they have. This is much lower than the 10-37% most workers pay on their labor. I'd argue that the business sale is capital gains. I never said it wasn't in my original post. Carried interest and a fixed flat fee to manage an investment (which most people call a salary) should not be taxed as if they are capital gains.

danielmarkbruce 5y ago
There are situations which are quite simple and, I agree with you they seem to be taxed the wrong way. It's just harder to fix than it seems because the spectrum of what people actually do when involved in a business is wide. Most situations are something in between your example of a person who "knows" and mine of a chef. The chef in my example "knows" what kind of food to create for a given area - ie the intersection of demographics/tastes, the existing competition, locations etc. That expertise is equivalent to your "knowing". The chef might not even actually work day to day - he/she just had the initial insights. Now the chef has moved along the continuum towards a finance person. In almost all the modern successful PE operations, the teams are industry specialists (ie if you look under the hood at Blackstone, KKR etc, the people are organized by industry). They actually know a lot about the operations, what can be improved, what needs to be thrown out etc. They are something in between my "chef" and your "person who knows". By and large, they aren't timing markets. Even VCs are becoming industry focused as opposed to generic. Many are former founders. They have stepped down the continuum toward being a "chef". ie, most folks are in the grey area. WRT business sales - at least for PE/VC folks, the carried interest is calculated on the business sale. There are some situations where they can write things up or down, but it washes out - ie they can't just write it up arbitrarily - the value of the asset, and hence their capital - needs to have actually gone up.

by useful 5y ago

danielmarkbruce 5y ago

There are situations which are quite simple and, I agree with you they seem to be taxed the wrong way. It's just harder to fix than it seems because the spectrum of what people actually do when involved in a business is wide. Most situations are something in between your example of a person who "knows" and mine of a chef. The chef in my example "knows" what kind of food to create for a given area - ie the intersection of demographics/tastes, the existing competition, locations etc. That expertise is equivalent to your "knowing". The chef might not even actually work day to day - he/she just had the initial insights. Now the chef has moved along the continuum towards a finance person. In almost all the modern successful PE operations, the teams are industry specialists (ie if you look under the hood at Blackstone, KKR etc, the people are organized by industry). They actually know a lot about the operations, what can be improved, what needs to be thrown out etc. They are something in between my "chef" and your "person who knows". By and large, they aren't timing markets. Even VCs are becoming industry focused as opposed to generic. Many are former founders. They have stepped down the continuum toward being a "chef". ie, most folks are in the grey area. WRT business sales - at least for PE/VC folks, the carried interest is calculated on the business sale. There are some situations where they can write things up or down, but it washes out - ie they can't just write it up arbitrarily - the value of the asset, and hence their capital - needs to have actually gone up.