Democrats, led by Rep. Tammy Baldwin (D-WI) and Sen. Sander Levin (D-MI) have once again introduced legislation to raise the tax rate on carried interest to the top personal income tax rate of 39.6 percent. The proposal serves two purposes for Democrats intent on raising taxes. First, it represents a predictable attack on successful investments. Carried interest only exists when an investment grows and it is, essentially, a manner of sharing the profits of an investment with those who are responsible for its growth.
The second implication is even broader and even more troubling. Sen. Ron Wyden (D-OR) recently revealed the attempt to raise taxes on carried interest as the first step in an attack on capital gains:
“Of course, when you talk about the carried interest loophole, you’re talking about capital gains. And when you talk about capital gains, you’re talking about the biggest tax shelter of all – the one hiding in plain sight.”
Capital gains are incurred when an investor receives a profit from the sale of an investment – which can include something as routine as selling one’s house. Wyden’s statement reveals that Democrats are intent on doing whatever they can to raise taxes on any and all investment income, not just carried interest.
“Often [Democrats] see raising the cap gains tax in increments as the best way to achieve their long-term policy goal of higher taxes. One of their favorite targets is taxing carried interest capital gains as ordinary income.”
As Washington begins to debate tax reform plans that would kickstart growth and promote economic development, Democrats have instead proposed a harmful tax increase that would not only affect principle investors, but pension funds and charities – and they’re using it as a Trojan Horse to attack all investment income next. As Americans for Tax Reform notes, this strategy is nothing more than an attempt to raise taxes without taking the politically treacherous step of raising the personal income tax rate.
“A goal of the left is higher taxes across the board and one of their favorite targets is hiking the capital gains tax. They do this because they know they can only raise the top ordinary income tax rate so much higher than it is today without wrecking the economy.”
Democrats have baldly stated that they will raise taxes at all costs and their attack on carried interest has already been revealed to be nothing more than the first step in an effort to target all investment income. Americans should be wary of this slippery slope – one that could quickly lead to higher taxes across the board.