Economist offers solution in shaky corporate world
The Department of Economics brought the Economist editor to Penn
October 8, 2013, 9:55 pm · Updated October 8, 2013, 11:19 pm·
It’s on the minds of legislators, corporate executives and financial journalists alike. And no, it’s not the federal budget.
Tom Easton, American finance editor of The Economist magazine, addressed a crowd of more than 100 at the Biomedical Research Building last night to break down one of the corporate world’s most recent innovations: master limited partnerships, or MLPs.
MLPs, Easton explained, offer their investors the fastest way to make money because of the tax benefits such companies receive from the government. These businesses are exempt from paying taxes, and the owners of such a business are not liable for the companies’ debts.
In order for a company to qualify for MLP status, at least 90 percent of its revenues must come from sources deemed “qualifying” under current federal law, such as oil production.
Only businesses engaged in certain trades, like the trade of private equities, can be identified as MLPs. According to Easton, Chevron, Exxon and The New York Times have all sold assets to MLPs because by “passing [their assets] through these structures, they are worth more.”
He added that because of the large amount of money MLPs can make in such a brief period of time, they often attract more investors. And since these companies end up paying out all their money, investors get their money back right away.
“The managing partners of these businesses earn up to 50 percent of the company’s increment in revenues,” he said, citing how the managing partner of Kinder Morgan, Inc., Richard Kinder, came to be worth more than $9 billion in just 10 years.
Easton spoke optimistically about how these new business models will completely revolutionize the modern structure of companies, describing these structures’ possible implications as “incredible.” Pointing to the growing influence of this model, Easton mentioned the MLP Parity Act, a bill introduced in June that would extend the tax-exempt advantage of these structures to more profitable industries such as energy and plastic productions.
Engineering freshman Will Constan took to Easton’s ideas about a new model for structuring companies “because our old ways of doing things don’t seem to be working anymore.”
On the other hand, Engineering freshman Sam Gaardsmoe believes “these structures might only be successful in the short-term because more and more people are going to find out about it in the long-term.”
This event was co-sponsored by the Penn Institute of Economic Research, the Department of Economics and the Undergraduate Economics Society.