Steve Klinsky Op-ed: “Don’t Kill Economic Growth with Tax Increases”
Today, New Mountain Capital Founder and CEO and former AIC Chair Steve Klinsky published an op-ed in the DC Journal outlining the harmful economic effects that proposed tax increases on carried interest capital gains would have on American workers, small businesses, and innovation. Klinsky writes about the important economic contributions of private equity and how carried interest capital gains play a crucial role in incentivizing long-term, productive investments in American businesses:
- “Private equity (PE) and venture capital (VC) firms invest about $5 trillion of growth capital to support them … Together, PE and VC firms back nearly 70,000 (mostly small) companies, employing about 15 million workers. These companies often grow faster than the economy and pay higher wages.”
- “Excessive taxation can slow or kill economic growth in any part of the economy, including private capital. A 10 percent drop in VC and PE investments, triggered by higher taxes, could take $500 billion of growth out of the U.S. economy amid growing fears of a recession.”
- “Eliminating carried interest capital gains opens the door to eliminating capital gains treatment altogether, and it may not be long until the same tax increases spread to all other types of private partnerships and skills-based owners.”
Read the full op-ed below:
DC Journal: Don’t Kill Economic Growth with Tax Increases
By Steve Klinsky | April 3, 2025
President Trump has promised to usher in a new economic “Golden Age.” But this laudable goal will prove impossible if tax hikes force America’s most entrepreneurial business builders to forgo long-term investments that support small businesses and create well-paying jobs.
Most companies in America are private, and private equity (PE) and venture capital (VC) firms invest about $5 trillion of growth capital to support them. They also provide valuable strategic direction and management experience. Together, PE and VC firms back nearly 70,000 (mostly small) companies, employing about 15 million workers. These companies often grow faster than the economy and pay higher wages.
PE and VC firms don’t passively trade stocks like hedge funds. Rather, we invest in and grow businesses over the long-term. New Mountain Capital, my firm, has added or created more than 70,000 jobs; invested over $8 billion on R&D, software and capital expenditures; and generated over $87 billion of enterprise value gains for all shareholders. These returns chiefly benefit public workers through their pension plans. We have never had a bankruptcy or missed an interest payment.
Excessive taxation can slow or kill economic growth in any part of the economy, including private capital. A 10 percent drop in VC and PE investments, triggered by higher taxes, could take $500 billion of growth out of the U.S. economy amid growing fears of a recession.
Carried interest has never been a loophole. Private capital partnerships are already taxed under standard partnership tax rules, or higher. When we receive salary or fees, we pay ordinary income tax rates. When we have ownership, we must wait three years for long-term capital gains treatment, vs. one year for everyone else.
PE and VC professionals typically invest their own money into the companies we support and build. The 250-plus team members of my firm have personally invested hundreds of millions of dollars into our latest fund.
False claims of the so-called loophole arise, however, because PE and VC firms also get some ownership in our companies in return for our managerial expertise, effort and skills. This ownership is sometimes known as “carried interest,” a term supposedly dating back to when ship captains and crews had an extra ownership share in their merchant trading voyages. Carried interest reflects the tangible value we create by building these businesses up over time. Thousands of private companies and partnerships outside of PE and VC employ this skills-based ownership structure, taxed at capital gains rates.
For example, a local entrepreneur borrows money to buy a business, and years later sells that business at a gain. He, as the owner, pays the capital gains rate, even though he used no money of his own.
Alternatively, a financial news reporter wants to build his own newsletter. He partners with an investor, and they split the ownership 50:50. If he sells the newsletter at a gain years later, he will enjoy half the profits and pay half the taxes. The investor will enjoy the other half of the gains and pay half the taxes. Both are rightfully taxed at the same capital gains tax rate.
This is how America’s capital gain tax system has always worked, because it incentivizes entrepreneurs and private capital to make long-term, productive investments to build businesses. Private equity and venture capital owners are just one part of this decades-old general rule.
It’s unproductive and unfair to single out private capital for punitive and self-defeating tax hikes. It may also reduce government tax revenue as economic growth slows, and if – for example – more partnerships switch to “Warren Buffet-style” corporate structures that simply never sell anything and never pay taxes.
Eliminating carried interest capital gains opens the door to eliminating capital gains treatment altogether, and it may not be long until the same tax increases spread to all other types of private partnerships and skills-based owners.
President Trump recently called for Congress “to pass tax cuts for everybody”. Our economy can slide into recession if we overtax it.
No group should have special loopholes in their favor, but no group should be targeted for special tax increases either. We should be incentivizing entrepreneurial private capital – which contributes trillions to economic growth – and not overtax it.
Steve Klinsky is the founder and CEO of New Mountain Capital, and former chair of the American Investment Council.
