Diary

House Tax Reform Treats Carried Interest as Capital Gains

After a contentious debate over the issue, the tax reform measure emerging from the Ways and Means Committee in Congress will tax carried interest as capital gains. Always seeking yet ever growing sources of revenue to spend, liberal Democrats characterized the issue as a “loophole” for carried interest, as if this form on income is not taxed all. Carried interest, which is long-term income from investments, is taxed at capital gains. The so-called closing of the “loophole” could raise taxes on carried interest, taking funds away from investments that create jobs in the economy.

Committee Chairman Kevin Brady (R-TX) has provided leadership in moving tax reform in Congress, working with members like Reps. Richard Hudson (R-NC), Louie Gohmert (R-TX), Alexander Mooney (R-WV), Lamar Smith (R-TX), Tom Rooney (R-FL) Trent Franks (R-AZ) and several others. These members know how important it is to pass tax reform that will encourage investment in American companies, at a time when millions of jobs need to be created for the American people.

“Carried interest is a long-term profits interest in a business that has operated for years. And, like any business, there are risks associated with the long-term investments on which carried interest is realized. For more than a century, tax law has appropriately defined profits derived from the sale of capital assets as capital gains income,” Rep. Hudson and others members if Congress explain a letter to the Chairman and Ranking Members of the Ways and Means Committee, ”Changing that characterization as it related to carried interest capital gains would arbitrarily punish investors in real estate, venture capital, private equity and other partnerships by treating their gains differently than those of other investors. According to the Internal Revenue Service, there are more than 3.6 million partnerships in the U.S., comprising more than 27 million partners. Many would be negatively impacted, if Congress changes the way these investments are taxed.”

President Donald Trump and Republicans running for Congress promised the American people a strong economic recovery and the creating of million of jobs. Tax reform is one of the key priorities to bringing about the prosperity the American people deserve, and were promised in the campaigns last year. It is important that tax reform enacted by Congress and the Senate, and sent to President Trump for his signature, continues the current practice of taxing carried interest as capital gains income.

Carried interest clearly by its nature meets the definition of long-term capital gains income and it should be taxed as such, as it currently is and has been for more than a century. Many politicians, who want to raise taxes, incorrectly label this characterization of carried interest s capital gains a “loophole” to be “closed” by subjecting this income to much higher tax rates. All too often, many of these politicians are seeking to raise taxes to create more money to spend in Washington D.C. Higher taxing and spending leads directly to fewer jobs being creating for the American people.

Cheers to Republicans in Congress for advancing tax reform that will continue to tax carried interest as capital gains. No doubt there will be efforts to change the bill and raise taxes on carried interest based on incorrect characterization of the issue, but these efforts must be resisted. Economic prosperity for the American people, depends in part, on keep this key part of the tax reform in place.