Barack Obama stands to pay less in taxes as a result of a special loophole that’s similar to one that he criticized during his presidency, according to a report.
The former president is a “strategic partner” with NBA Africa, a venture which oversees the continent’s Basketball Africa League.
In a July 2021 press release, the NBA announced that Obama “will have a minority equity stake in the new venture” while he “help[s] advance the league’s social responsibility efforts across the continent.”
Obama’s deal with NBA Africa has been structured as a “profit interest” share, which is similar to the “carried interest loophole” that the former president denounced as a gift to the wealthy, according to independent journalist Lee Fang.
A “profit interest” is an equity-like form of compensation that limited liability companies offer to employees.
Instead of employees investing money up front in a venture, they are entitled to a profits interest grant in which they receive a percentage of future profits.
If structured properly, the grants, which are often extended to celebrity endorsers of products as well as sophisticated investors, are not taxable as income to the worker.
According to Fang, Obama would be taxed at a capital gains rate of just 20% — significantly lower than what ordinary Americans pay on their income taxes — if he cashes in on the proceeds of a potential sale of NBA Africa in the future.
The “profit interest” arrangement is similar in character to the carried interest loophole, which is often employed by hedge funds and private equity investors so that they pay a capital gains rate on packages that are often worth millions of dollars, according to Fang.
Fang cited a corporate tax lawyer, Gregg Polsky of the University of Georgia, who said that profits interest arrangements are a “close cousin to carried interest received by private equity and venture capital fund managers.”
While president, Obama denounced “carried interest loophole” as a means by which “folks who are doing very well [are] paying lower rates than their secretaries.”
Despite promises to do so, both Presidents Donald Trump and Joe Biden have failed to abolish the tax break after opposition from Congress.
The Post has sought comment from Obama.
In 2012, Obama, who was running for re-election at the time, blasted his Republican opponent, Mitt Romney, for utilizing the carried interest loophole during his career as a private equity executive.
Since leaving office, Barack and Michelle Obama have seen their wealth explode thanks to media ventures including books and podcasts.
The former first lady netted a $65 million book advance for her bestselling memoir.
The couple also signed a $50 million deal with Netflix.
The former president also gives speeches for which he is paid six figures apiece.
The couple’s net worth has been estimated at between $70 million and $135 million.
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