BUZ LIVINGSTON: A tax loophole we should close

Published: Thursday, November 1, 2012 at 06:02 PM.

In 2007, Charles Grassley, Republican Senator from Iowa, aroused the hedge fund industry’s ire by proposing eliminating the “carried interest” exclusion. After they struck back with a vengeance, threatening him with a primary challenge, he backed down. 

Hedge funds are not magic but a marketing ploy. Statistically you get the return of S&P 500 with increased volatility. Increased volatility cuts both ways but taking the risk makes no sense. I have nothing against hedge fund operatives (see cousin above). A signature event in my life occurred last St Patrick’s Day at McTighe’s —home of 30A’s finest Reuben. A former Wall Street hedge fund bigwig couldn’t qualify for a tab. His polite argument was sinking fast until I vouched for him… so sweet.

Shrewd tax attorneys can make astute arguments for the carried interest exclusion but they would be wrong. While tax attorneys seldom err, sometimes they do. Mitt Romney’s income from Bain Capital like George Soros’ is deferred compensation. Their capital was never at risk like my timber, Walton County real estate circa 2006 or your stock investments in 2008. 

From The Inbox   

One of my favorite actuaries, who hails from Bonifay, pondered if rebalancing your portfolio is little more than market timing. No. Market timing means a bet on one sector versus rebalancing where you adjust your portfolio to a predetermined level. If you wanted a 40 percent stock portfolio and the market went down, then you would buy stocks thereby adjusting your portfolio to the 40 percent target. You force yourself to buy low and sell high. 

Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast.  He can be reached at 267-1068, Buz@LivingstonFinancial.netor www.LivingstonFinancial.net

 



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