Katy Roberts , Columnist

If Carried Interest Irks You, You Don’t Get It: William Dantzler

January 30, 2012 at 12:00 AM UTC

Katy Roberts is an editor for Bloomberg Opinion. She previously worked at the New York Times, serving as national editor and editor of the op-ed page and Week in Review (now Sunday Review).

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The release of Mitt Romney’s tax returns last week gave the nation a crash course in the mysterious “carried interest” that was said to allow him to pay 15 percent on millions of dollars of capital gains. Unfortunately, more heat than light was shed on what a carried interest really is.

A carried interest is an ownership interest in a partnership that entitles the partner to a percentage of the profits but doesn’t obligate the partner to provide any capital. It is the other partners who provide the necessary capital, and they are thereby “carrying” the partner who does not.