PEC statement on tax legislation proposed by Ways and Means Chairman Rangel
The Private Equity Council today issued the following statement on a proposal to change the tax treatment of “carried interest” investment income for private equity firms and other partnerships as outlined in legislation introduced by House Ways and Means Chairman Charles Rangel (D-NY).
“Private equity has helped power growth in the economy and made scores of companies more competitive. Ernst & Young recently reported that private equity investment results in stronger businesses that significantly outperform their equivalents in the public sector. Congress should not raise private equity taxes by 130 percent and create the risk that some of the benefits of this economic activity could be discouraged.
“Leading European countries, including the United Kingdom, France, Ireland, and Spain, tax carried interest as a capital gain. By heading the other direction, Congress would put U.S. investment firms at a competitive disadvantage, risking a migration of investment in U.S. businesses to jurisdictions with more hospitable tax climates.
“The proposal would undo decades of established partnership tax law and create a new standard that reserves capital gains rates only for those with the wherewithal to invest equity into an enterprise. Meanwhile, those partners who invest their time and effort to add value to an asset they own — the very people who often are mainly responsible for any capital gains generated — would be taxed at ordinary rates. We do not believe that is an equitable outcome.
“The legislation also would effectively bar private equity partnerships from going public, denying PE firms the permanent source of capital they need to maintain global market leadership. As a result, American PE firms will be less capable of competing with foreign competitors and sovereign wealth funds created by countries like China, Dubai, Singapore, and others.
“We respect Chairman Rangel’s effort to address perceived fairness issues in the tax system and develop comprehensive tax legislation. Both are important goals, and we do not underestimate the difficulty and complexity of the task. We look forward to working with the Chairman and his Democratic and Republican colleagues on the Committee as the legislation is considered.”
