Carried Interest Tax

Bill Seeks to Raise Taxes on Private Equity Carry

H.R. 4213, a bill filed by the House Ways and Means Committee, seeks to change the way carried interest is taxed.  Under the proposed legislation, the carry would no longer be taxed at a lower rate as long term capital gain and instead face the normal ordinary income tax rate.  The Private Equity Council, a trade association representing several large private equity firms, issued the following statement:

“Raising taxes on growth investments by private equity, real estate and many other partnerships just doesn’t make sense — particularly in this time of fragile economic recovery and continuing joblessness. By more than doubling the tax rate, the carried interest proposal will discourage investment; deprive many American businesses of the capital they need to survive and grow; and jeopardize critical job creation opportunities.

“The bill also would impose a significant new tax burden on investment partnerships that wish to offer shares to the public — a provision that would discriminate among and between firms and further reduce important investments.

“Carried interest is appropriately taxed as a long-term capital gain because it represents the profit that an investment partnership earns by buying a capital asset — in the case of private equity, a company — increasing its value over time and eventually selling it for more than the purchase price.

“Congress established a lower capital gains tax rate to encourage long-term investments that grow the economy. In the case of private equity, that’s just what has happened. In the past six years, private equity partnerships in the United States invested more than $240 billion in equity in American businesses. Congress should not put future investments at risk by raising taxes now.”  Source

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