Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
USA TODAY's debate on private equity taxation raised important points but overlooked a key fact ("Decoy on tax fairness ," Our view; "Don't tinker with success ," Opposing view, Income inequality debate, Sept. 10).
The current bill in the U.S. House of Representatives that is often described as taxing the "carried interest" of private equity firms would actually hike taxes on a broad array of other businesses — big and small — that are structured as partnerships. The bill would also add layers of complexity to partnership taxation and, in some cases, directly raise taxes on stockholders in public firms.
The increase would reach beyond private equity. In its own words, the bill covers "any interest in a partnership which is held by any person ." Income now taxed as capital gains could be taxed at higher rates for ordinary income if a partner is deemed to be performing any broadly defined "investment services" for the firm. This new tax would directly affect many ordinary investors in real estate investment trusts, or REITs. If the REIT is in a real estate partnership, as many are, returns to REIT shareholders from property sales could be taxed at much higher rates.
Let's not curtail a valuable option for numerous American entrepreneurs and investors in a rush to "stick it" to the private equity industry.