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The rise of MLPs

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Tuesday, Oct. 29, 2013, 9:00 p.m.

“Time and time again, the imposition of new burdens on businesses distorts the flow of money.” The Economist magazine states the obvious in its current edition.

The reference is to the latest tactic corporate America is embracing to counter the actions of financial regulators to rein in, in the name of “fair play,” those it says have unfairly employed capitalism's “excesses.” But, as the magazine notes, such regulations have led to this perversity — “rules to protect investors encourage firms not to grow,” which serves neither, nor the economy at large.

That additional red tape and high taxes have led to the rise of master limited partnerships, or MLPs, which The Economist defines as a combination of “the limited liability of a corporation, the tax advantages of a partnership and the governance of a private firm.”

MLPs don't pay corporate taxes as long as profits are passed back to investors each year. Proponents tout it as a way to raise capital quickly, serve as a credit alternative to those bypassed by banks, and, by their very nature, force capital to flow rather than be hoarded.

Critics argue that MLPs are yet another monster of the special interests that cater to special interests and at the expense of transparency and, thus, pervert public markets, if not the spirit of capitalism itself.

Of course, as The Economist reminds, there is that time-honored better solution — leveling the playing field by reducing the onerous regulations and high corporate tax rates that created the climate for MLPs in the first place.

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