• Dan Shaviro (NYU), A Critique of Bain Capital:

[T]he film … makes a specific claim about Romney's private equity career that deserves broader attention and assessment. The claim is that Bain's business model under Romney was as follows. They would buy a business and boost its short-term profitability through measures that did not actually increase, and might indeed reduce, its long-term profitability. A specific example mentioned is demanding swifter production at the cost of much lower quality, which could increase sales for the first six to twelve months but then destroy a product's reputation and longer-term sales. Another is slashing wages, where they were previously higher for "efficiency wage" reasons, generating immediate savings but over a longer period reducing workforce productivity (e.g., due to higher turnover costs, change in the quality of the workforce, and morale effects).

The short-term profit jump would immediately be cashed out via higher debt, in many cases accompanied as well by a public stock offering. Bain would then cash out, leaving the business to fail because profits, once they reverted to lower levels, couldn't handle the debt burden.

While I don't know for sure that this story is (at least generally) true, it hangs together and makes logical sense. … Obviously, the story requires a healthy dose of asymmetric information and capital market gullibility to get off the ground. (The suckers, after all, are not just the workers but also the lenders and the public offering stock purchasers.) But this is entirely believable. Think of Goldman conning its customers, AIG offering what was effectively an insurance product that it would never be able to make good if the insurance was needed, or mortgage securitizations that offered sham diversification benefits and were priced based on credit ratings that they did not deserve. Bain, under this view, is simply one more member of the rogue's gallery of players that found ways to generate enormous profits by causing the U.S. economy to work worse, not better.

• Howard Gleckman (Tax Policy Center), Carlyle, Bain Capital, and the Tax Treatment of “The Carry”:

The on-again, off-again battle over how to tax the compensation of private equity managers may be on again, thanks to the confluence of two seemingly unrelated events.

The first is the controversy over the role of Bain Capital, the investment partnership whose founders included Republican presidential hopeful Mitt Romney. The second is the disclosure by another firm, The Carlyle Group, of how its top executives are compensated. …

The carry allows general partners in investment deals to receive compensation in the form of tax-advantaged capital gains, which are taxed at 15%, rather than as salary, which would be taxed as ordinary income with a top rate of 35%. This happens because the managers are paid with a fee (up to 2%) plus 20% or more of their investor’s profits. Those profits are taxed as capital gains even though the general partners may have little or no money of their own at risk in the deal.

Carlyle’s disclosure opens a small window into how this works. In 2011, its three founders were each paid about $140 million. But they received just $275,000 in salary and another $3.5 million in the form of a bonus (also taxable at ordinary income rates). But each also got $134 million—or 96% of their compensation–from investment profits. Much came from the carry and is taxable at 15%. 

The New York Times that reports that Romney continues to receive a share of investment profits from Bain, although he retired almost 13 years ago. Should these profits be taxed as capital gains, ordinary income, or some of each?

• Daniel J. Mitchell (Cato Institute), Mitt Romney and Bain Capital Were Right to Utilitize So-Called Tax Havens
• FactCheck.org, Facts Strained in ‘King of Bain’
• L.A. Times, Mitt Romney No Stranger to Tax Breaks, Subsidies