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    Carried Interest Is Back in the Headlines. Why It’s Not Going Away.

    Changes demanded by Senator Kyrsten Sinema will preserve a tax loophole that Democrats have complained about for years.For years, Democrats and even some Republicans such as former President Donald J. Trump have called for closing the so-called carried interest loophole that allows wealthy hedge fund managers and private equity executives to pay lower tax rates than entry-level employees.Those efforts have always failed to make a big dent in the loophole — and the latest proposal to do so also faltered this week. Senate leaders announced on Thursday that they had agreed to drop a modest change to the tax provision in order to secure the vote of Senator Kyrsten Sinema, Democrat of Arizona, and ensure passage of their Inflation Reduction Act, a wide-ranging climate, health care and tax bill.An agreement reached last week between Senator Chuck Schumer, the majority leader, and Senator Joe Manchin III, Democrat of West Virginia, would have taken a small step in the direction of narrowing carried interest tax treatment. However, it would not have eliminated the loophole entirely and could still have allowed rich business executives to have smaller tax bills than their secretaries, a criticism lobbed by the investor Warren E. Buffett, who has long argued against the preferential tax treatment.The fate of the provision was always in doubt given the Democrats’ slim control of the Senate. And Ms. Sinema had previously opposed a carried interest measure in a much larger bill called Build Back Better, which never secured the 50 Senate votes needed — Republicans have been unified in their opposition to any tax increases.Had the legislation passed in the form that Mr. Schumer and Mr. Manchin presented it last week, the shrinking of the carried interest exception would have brought Democrats a tiny bit closer to realizing their vision of making the tax code more progressive.What is carried interest?Carried interest is the percentage of an investment’s gains that a private equity partner or hedge fund manager takes as compensation. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.Under existing law, that money is taxed at a capital-gains rate of 20 percent for top earners. That’s about half the rate of the top individual income tax bracket, which is 37 percent.The 2017 tax law passed by Republicans largely left the treatment of carried interest intact, after an intense business lobbying campaign, but did narrow the exemption by requiring private equity officials to hold their investments for at least three years before reaping preferential tax treatment on their carried interest income.What would the Manchin-Schumer agreement have done?The agreement between Mr. Manchin and Mr. Schumer would have further narrowed the exemption, in several ways. It would have extended that holding period to five years from three, while changing the way the period is calculated in hopes of reducing taxpayers’ ability to game the system and pay the lower 20 percent tax rate.Senate Democrats say the changes would have raised an estimated $14 billion over a decade, by forcing more income to be taxed at higher individual income tax rates — and less at the preferential rate.The longer holding period would have applied only to those who made $400,000 per year or more, in keeping with President Biden’s pledge not to raise taxes on those earning less than that amount.The tax provision echoed a measure that was initially included in the climate and tax bill that House Democrats passed last year but that stalled in the Senate. The carried interest language was removed amid concern that Ms. Sinema, who opposed the measure, would block the overall legislation.Why hasn’t the loophole been closed by now?Many Democrats have tried for years to completely eliminate the tax benefits private equity partners enjoy. Democrats have sought to redefine the management fees they get from partnerships as “gross income,” just like any other kind of income, and to treat capital gains from partners’ investments as ordinary income.Such a move was included in legislation proposed by House Democrats in 2015. The legislation would also have increased the penalties on investors who did not properly apply the proposed changes to their own tax filings.The private equity industry has fought back hard, rejecting outright the basic concepts on which the proposed changes were based.“No such loophole exists,” Steven B. Klinsky, the founder and chief executive of the private equity firm New Mountain Capital, wrote in an opinion article published in The New York Times in 2016. Mr. Klinsky said that when other taxes, including those levied by New York City and the state government, were accounted for, his effective tax rate was between 40 and 50 percent.What would the change have meant for private equity?The private equity industry has defended the tax treatment of carried interest, arguing that it creates incentives for entrepreneurship, healthy risk-taking and investment.The American Investment Council, a lobbying group for the private equity industry, described the proposal as a blow to small business.“Over 74 percent of private equity investment went to small businesses last year,” said Drew Maloney, chief executive of the council. “As small-business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”The Managed Funds Association said the changes to the tax code would hurt those who invested on behalf of pension funds and university endowments.“Current law recognizes the importance of long-term investment, but this proposal would punish entrepreneurs in investment partnerships by not affording them the benefit of long-term capital gains treatment,” said Bryan Corbett, the chief executive of the association.“It is crucial Congress avoids proposals that harm the ability of pensions, foundations and endowments to benefit from high-value, long-term investments that create opportunity for millions of Americans.”Jim Tankersley More

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    Oil and Gas Prices May Stay High as Investors Chase Clean Energy

    Even as more costly fuel poses political risks for President Biden, oil companies and OPEC are not eager to produce more because they worry prices will drop.HOUSTON — Americans are spending a dollar more for a gallon of gasoline than they were a year ago. Natural gas prices have shot up more than 150 percent over the same time, threatening to raise prices of food, chemicals, plastic goods and heat this winter.The energy system is suddenly in crisis around the world as the cost of oil, natural gas and coal has climbed rapidly in recent months. In China, Britain and elsewhere, fuel shortages and panic buying have led to blackouts and long lines at filling stations.The situation in the United States is not quite as dire, but oil and gasoline prices are high enough that President Biden has been calling on foreign producers to crank up supply. He is doing so as he simultaneously pushes Congress to address climate change by moving the country away from fossil fuels toward renewable energy and electric cars.U.S. energy executives and the Wall Street bankers and investors who finance them are not doing anything to bolster production to levels that could bring down prices. The main U.S. oil price jumped nearly 3 percent on Monday, to about $78 a barrel, a seven-year high, after OPEC and its allies on Monday declined to significantly increase supply.Producers are still chafing at memories of the price crash early in the pandemic. Wall Street is even less enthusiastic. Not only have banks and investors lost money in the boom-bust cycles that whipsawed the sector over the past decade, but many also say they are prepared to pare their exposure to fossil fuels to meet the commitments they have made to fight climate change.“Everyone is very wary since it was just 15 or 16 months ago we had negative-$30-a-barrel oil prices,” said Kirk Edwards, president of Latigo Petroleum, which has interests in 2,000 oil and natural gas wells in Texas and Oklahoma. He was recalling a time of so little demand and storage capacity that some traders paid buyers to take oil off their hands.If the drillers don’t increase production, fuel prices could stay high and even rise. That would present a political problem for Mr. Biden. Many Americans, especially lower-income families, are vulnerable to big swings in oil and gas prices. And while use of renewable energy and electric cars is growing, it remains too small to meaningfully offset the pain of higher gasoline and natural gas prices.Goldman Sachs analysts say energy supplies could further tighten, potentially raising oil prices by $10 before the end of the year.That helps explain why the Biden administration has been pressing the Organization of the Petroleum Exporting Countries to produce more oil. “We continue to speak to international partners, including OPEC, on the importance of competitive markets and setting prices and doing more to support the recovery,” Jen Psaki, Mr. Biden’s press secretary, said last week.But OPEC and its allies on Monday merely reconfirmed existing plans for a modest rise in November. They are reluctant to produce more for the same reasons that many U.S. oil and gas companies are unwilling to do so.Oil executives contend that while prices may seem high, there is no guarantee that they will stay elevated, especially if the global economy weakens because coronavirus cases begin to increase again. Since the pandemic began, the oil industry has laid off tens of thousands of workers, and dozens of companies have gone bankrupt or loaded up on debt.Oil prices may seem high relative to 2020, but they are not stratospheric, executives said. Prices were in the same territory in the middle of 2018 and are still some ways from the $100-a-barrel level they topped as recently as 2014.Largely because of the industry’s caution, the nationwide count of rigs producing oil is 528, roughly half its 2019 peak. Still, aside from recent interruptions in Gulf of Mexico production from Hurricane Ida, U.S. oil output has nearly recovered to prepandemic days as companies pull crude out of wells they drilled years ago.Another reason for the pullback from drilling is that banks and investors are reluctant to put more money into the oil and gas business. The flow of capital from Wall Street has slowed to a trickle after a decade in which investors poured over $1.4 trillion into North American oil and gas producers through stock and bond issues and loans, according to the research firm Dealogic.“The banks have pulled away from financing,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major Texas oil and gas producer. The flow of money supplied by banks and other investors had slowed even before the pandemic because shale wells often produced a lot of oil and gas at first but were quickly depleted. Many oil producers generated little if any profit, which led to bankruptcies whenever energy prices fell.Companies constantly sold stock or borrowed money to drill new wells. Pioneer, for example, did not generate cash as a business between 2008 and 2020. Instead, it used up $3.8 billion running its operations and making capital investments, according to the company’s financial statements.Industry executives have come to preach financial conservatism and tell shareholders they’re going to raise dividends and buy back more stock, not borrow for big expansions. Mr. Sheffield said Pioneer now intended to return 80 percent of its free cash flow, a measure of money generated from operations, to shareholders. “The model has totally changed,” he said.Among oil executives, there are still vivid memories of the collapse in energy prices last year, as the pandemic curtailed commuting and travel.Tamir Kalifa for The New York TimesOil company shares, after years of declines, have soared this year. Still, investors remain reluctant to finance a big expansion in production.With oil and gas exploration and production businesses taking a cautious approach and returning money to shareholders, the first company “that deviates from that strategy will be vilified by public investors,” said Ben Dell, managing director of Kimmeridge, an energy-focused private equity firm. “No one is going down that path soon.”This aversion to expanding oil and gas production is driven in part by investors’ growing enthusiasm for renewable energy. Stock funds focusing on investments like wind and solar energy manage $1.3 trillion in assets, a 40 percent increase this year, according to RBC Capital.And the biggest investment firms are demanding that companies cut emissions from their operations and products, which is much harder for oil and gas companies than for technology companies or other service-sector businesses.BlackRock, the world’s largest asset manager, wants the businesses it invests in to eventually remove as much carbon dioxide from the environment as they emit, reaching what is known as net-zero emissions. The New York State Common Retirement Fund, which manages the pension funds of state and local government workers, has said it will stop investing in companies that aren’t taking sufficient steps to reduce carbon emissions.But even some investors pushing for emissions reductions express concern that the transition from fossil fuels could drive up energy prices too much too quickly.Mr. Dell said limited supply of oil and natural gas and the cost of investing in renewable energy — and battery storage for when the sun is not shining and the wind is not blowing — could raise energy prices for the foreseeable future. “I am a believer that you’re going to see a period of inflating energy prices this decade,” he said.Laurence D. Fink, chairman and chief executive of BlackRock, said this could undermine political support for moving away from fossil fuels.“We risk a supply crisis that drives up costs for consumers — especially those who can least afford it — and risks making the transition politically untenable,” he said in a speech in July.There are already signs of stress around the world. Europe and Asia are running low on natural gas, causing prices to rise even before the first winter chill. Russia, a major gas supplier to both regions, has provided less gas than its customers expected, making it hard for some countries to replace nuclear and coal power plants with ones running on gas.OPEC, Russia and others have been careful not to raise oil production for fear that prices could fall if they flood the market. Saudi Arabia, the United Arab Emirates, Russia and a few other producers have roughly eight million barrels of spare capacity.“The market is not structurally short on oil supply,” said Bjornar Tonhaugen, head of oil markets for Rystad Energy, a Norwegian energy consulting firm.Helima Croft, head of global commodity strategy at RBC Capital Markets, said she expected that OPEC and Russia would be willing to raise production if they saw the balance between supply and demand “tighten from here.”If OPEC raises production, U.S. producers like Mr. Edwards of Latigo Petroleum will be even more reluctant to drill. So far, he has stuck to the investment plans he made at the beginning of the year to drill just eight new wells over the last eight months.“Just because prices have jumped for a month or two doesn’t mean there will be a stampede of drilling rigs,” he said. “The industry always goes up and down.”Clifford Krauss reported from Houston, and Peter Eavis from New York. More

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    Canada Goose’s Image Is Challenged by Union Effort

    Production of the company’s parkas was once fully unionized, but labor organizers say the owners have taken a harder line in recent years.Canada Goose, the luxury jacket maker, has cultivated an image that is not only chic but also socially conscious. It has forged alliances with environmental advocates and talked of its commitment to high labor standards.These efforts have paid off as the company outgrew its roots as a family enterprise and built a worldwide following for its parkas, which can cost over $1,000 and have been worn by celebrities like Daniel Craig and Kate Upton. “We believe that the brand image we have developed has significantly contributed to the success of our business,” the company wrote in a Securities and Exchange Commission filing in March.But production employees of Canada Goose, who were all unionized as of 2010, have complained that the company has taken an increasingly hard line toward labor that is at odds with its stated values.Shoppers at a Canada Goose store in New York in 2019. Employees have accused the luxury jacket maker of being anti-union.Jeenah Moon for The New York TimesIn 2019, a company official was cited by a provincial labor board for unfair labor practices during a union election at a newer facility, and some employees complain that the company has retaliated against them in recent months for supporting a union.“People have fear,” said Alelie Sanvictores, a worker who has been active in union organizing. “Some people are scared to talk to me.”Canada Goose denies that it is anti-union and that it has retaliated against union supporters. “It is the employees who will decide their path forward, and Canada Goose will support their decision,” the company said in a statement. The company dismissed the official cited for unfair labor practices.On Wednesday, a few dozen labor activists picketed the Boston headquarters of Bain Capital, the private equity firm that owns and controls Canada Goose, hoping to pressure the jacket maker to endorse a union at three plants in Winnipeg.Pro-union demonstrators gathered Wednesday outside the Boston headquarters of Bain Capital, the private equity firm that controls Canada Goose.Philip Keith for The New York TimesThe tensions at Canada Goose appear to illustrate the challenges of seeking rapid growth while maintaining a high-minded reputation that helps sustain a luxury business.An immigrant named Sam Tick founded Canada Goose, then known as Metro Sportswear Ltd., in 1957. Its lone factory, in Toronto, unionized in the mid-1980s.After Mr. Tick’s grandson Dani Reiss took over as chief executive in 2001, he sought to increase worldwide sales of what had largely been a North American operation. Still, he committed to making its parkas in Canada even as much of the country’s apparel industry was moving offshore.“By keeping the majority of our production domestic, we contribute to local job growth and can more easily maintain our high manufacturing and labour standards,” the company wrote in its 2020 sustainability report.But Mr. Reiss has seemed more skeptical of unions than his predecessors at Canada Goose. After the company bought a production facility in Winnipeg in 2011, the union sought a voluntary recognition or a neutrality agreement that would allow workers there to unionize easily.“Dani Reiss said he wasn’t interested in doing that,” said Barry Fowlie, who for roughly a decade has directed the Canada Council of Workers United, the union that represents workers at the company.A company spokeswoman said the union had never asked for voluntary recognition “in any official context.”Bain Capital purchased a majority stake in Canada Goose in 2013 and listed it on the New York and Toronto stock exchanges in 2017.Under Bain’s ownership, the number of unionized workers increased to over 1,000 just before the pandemic, thanks to growth at the original Toronto plant and the addition of two more facilities there. A collective bargaining agreement that predated the new sites makes all Toronto-based production workers part of the union.But facilities in Winnipeg, where the company’s three factories had over 1,000 production workers before the pandemic, are not covered. The growth of the work force there has helped lower the company’s union membership among production workers to about one-third today, according to a filing with the Securities and Exchange Commission.Workers at the Winnipeg plants say many of them make the province’s minimum wage, which is about 12 Canadian dollars per hour (around $9.65), though workers can earn more if they exceed certain production targets. The company said nearly 70 percent of workers were making more than the minimum wage.Canada Goose committed to making its parkas in Canada, even as much of the country’s apparel industry was moving offshore. Mark Blinch/ReutersIn interviews, five workers complained that managers were often abusive toward the largely immigrant work force.One worker, Immanuelle Concepcion, said her supervisor flew into a rage over mistakes in some jackets she appeared to have worked on. “She told me, ‘How dare you allow this to happen? How dare you?’” Ms. Concepcion recalled. “I was shaking. I haven’t experienced humiliation that way.”The Canada Goose spokeswoman said that the company had gotten no reports of “frequent abuse” and that all reports of harassment were investigated.In June, the company disciplined two workers at one of its Winnipeg plants shortly after they had identified themselves as union supporters. One said he had routinely been wearing headphones while working, but was warned and then written up for it — on two consecutive days — only after he went to work wearing a union T-shirt.Until then, said the worker, Trevor Sinclair, “my supervisor never said anything about it.”Canada Goose said that “no employees face disciplinary action due to union organization” and that disciplinary action had been taken against Mr. Sinclair once management became aware of his violation.Nearly 30 percent of Canadian workers are union members, compared with about 11 percent of American workers. Mr. Sinclair said he felt that Canada Goose was essentially importing an American model of fighting unions.“The way they treat us is not how Canadians treat each other,” he said. “Management doesn’t really understand what Canada is about.”Philip Keith contributed reporting. More