File This Under: How to Really Sink the Economy, Kill Jobs, Make the U.S. Less Competitive and Capital More Scarce
It seems as though bad ideas never die when politicians can't bring themselves to reduce or cut spending. And when the economy stands on the brink of losing even more steam, Washington continues to propose things that would disincentivize entrepreneurs from investing, building businesses and business value. Over the past decade or more, SBE Council has pointed out the madness in raising taxes on carried interest and enterprise value. Do we want the U.S. economy to grow, or to shrink? If we want it to expand, elected officials cannot make growth investment less attractive. Such activity needs to be incentivized and rewarded, not punished.
Why is raising taxes on carried interest and enterprise value a bad idea?
• The carried interest tax hike would more than double taxes on growth investment in the United States. Adding it to the debt limit legislation, which is intended to restore confidence in the economy, is especially reckless as it would have the opposite impact.
• The proposal is more than "just a tax on hedge fund managers." The tax increase is aimed at real estate, private equity, venture capital, and other businesses that make long-term investments that stimulate job creation and innovation.
• By dramatically boosting the cost of capital, the carried interest proposal will discourage the risk taking required to start, grow, and save American companies.
• Our major global competitors tax carried interest as a capital gain and at rates ranging from 0% in India to 10% in China. The carried interest proposal will draw capital from our shores to more friendly foreign markets. Our global competitors are more than happy to welcome such capital.
• The proposal contains an enterprise value tax, which would deny those who build their businesses over many years long-term capital gains rates if the business is eventually sold in whole or in part. Investment partnerships would be the only form of business in America subject to this discriminatory treatment.
• The current tax treatment of carried interest and enterprise value is neither a "loophole" nor a temporary tax expenditure. The carried interest proposal would upend more than 50 years of partnership tax law characterizing carried interest and enterprise value as capital gains.
• If the carried interest proposal is enacted, then capital gains treatment for similar kinds of long-term investment may also be eliminated, ending decades of America's commitment to fostering entrepreneurial risk taking.
SBE Council finds it maddening that these economy-sapping measures are being tied to budget and debt reduction initiatives, and being urgently pushed to "save the economy" and "create greater certainty" for businesses. Meanwhile, they will do just the opposite and SBE Council will continue to advocate against these misguided proposals that hurt investment and our entrepreneurial sector.
Karen Kerrigan, President & CEO