Carried Interest Update: No Super Committee Deal
The Joint Select Committee on Deficit Reduction (a.k.a., “the Super Committee”) announced today that after months of negotiations it was unable to reach a deal to cut the national deficit by at least $1.2 trillion over ten years. The committee’s inability to come to an agreement has both near- and long-term implications that will reverberate throughout the political and economic landscape.
The result of the Super Committee’s inability to negotiate a deal will be a series of automatic cuts to go into effect beginning in January 2013 in order to reach the intended target of $1.2 trillion. These cuts, known as sequestration, will affect a variety of defense and non-defense programs across the federal government. It is possible that Congress and the President could attempt to alter the sequestration process next year before pre-established cuts come into effect in 2013, but it remains unclear at this time how that policy option may play out.
For private equity firms, the absence of a Super Committee deal means that carried interest will continue to be taxed appropriately as long-term capital gains. Throughout the Super Committee process, the PEGCC worked hard to educate lawmakers on the importance of investment in a struggling economy and how raising taxes on carried interest would have negative impacts on the economy.
While increased taxes on carried interest is not part of the sequestration, it is important to recognize that threats to increase taxes on carried interest may reemerge in the context of other tax and spending debates that remain unresolved in Washington. The PEGCC remains focused on this issue and will continue the fight for policies that incentivize investment and lead to growth while opposing efforts to increase taxes on carried interest.
All of the long-term consequences of the Super Committee’s inability to reach a deficit reduction deal are unknown, but failure to agree confirms that the political environment remains highly contentious. The volatility that has characterized the political landscape is likely only to increase as both parties gear up for a presidential election. As a result, we remain fully engaged in the political process to ensure your interests are protected.
Please do not hesitate to get in touch if you have questions or if you would like to help make your voice heard on Capitol Hill. For daily updates on news about private equity, follow us on Twitter at @PEGCCouncil.
