Carried Interest, Again
March 5, 2013 at 11:51 am
The Times allowed two op-ed pieces over three days calling for an end to the capital gains tax treatment of carried interest earned by managers of investment partnerships. Yet when someone wants to defend the current tax treatment, the article isn't allowed into the physical newspaper at all, but shunted into the online "Dealbook" area. From the article, by Steve Judge, the president and chief executive of the Private Equity Growth Capital Council:
The aristocratic argument presented by Ms. de Rothschild and others that capital gains treatment should only be available to those with money to invest would advance a policy that puts a higher value on financial contributions than vision, hard work and other forms of "sweat equity."
The underlying principle is no different than two friends who partner together to purchase a restaurant. One might bring capital and the other brings expertise. The restaurant could be in disrepair or a great concept that needs additional capital to expand. The chef identifies the restaurant to buy and possesses the skills to manage the restaurant and add value to the enterprise over time. The friend has the capital to invest, but doesn't possess the operational or investment skills to generate a return.
When they sell the restaurant years later, both partners receive capital gains treatment on their long-term investment. A private equity partnership works in the same way. This is Partnership Law 101.
… The Joint Committee on Taxation, a nonpartisan committee of Congress, has pegged the additional revenue from carried interest at just $16.85 billion over 10 years. The joint committee estimate even includes the controversial enterprise value provision, which experts believe constitutes two-thirds of the total revenue assumption.
We had pointed out here at Smartertimes that one of the Times op-eds got the revenue estimate wrong, mistakenly confusing single-year numbers with ten-year numbers. Yet the Times has yet to correct the mistake.
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