This week The US Chamber of Commerce released a study that attempted to show that taxing carried interest as normal income would lead to massive job loss, a decrease in tax revenue, and an overall reduction in investment. But while Chamber lobbyists are sure to use this so-called “study” to try to convince lawmakers to preserve the carried interest loophole, in reality this document is nothing more than a regurgitation of egregiously false private equity talking points, chock full of blatant mischaracterizations and lies.
Years ago our Chairman, Morris Pearl, wrote a line for line breakdown on the lies within the Private Equity Growth Capital Council’s letter to the Finance Committee on why they shouldn’t tax carried interest like ordinary income. Now, years later, this report echoes the same lies we heard back in 2015, and it’s just as much nonsense today as it was back then.
The new study claims that this tax will lead to a loss of 4.9 million jobs. This ridiculous number has no basis in reality because the fund managers who would be subject to the tax make up an incredibly small portion of our economy. The burden of the carried interest tax would fall exclusively on fund managers, which would have virtually no impact on private equity fund investors or their risk preference. There’s no reality that exists where taxing a bonus for a couple thousand wealthy people would lead to an entire state’s worth of jobs disappearing.
The Chamber of Commerce goes on to claim that this tax would bring about a combined federal, state, and local revenue loss of $96 billion dollars, but the complete opposite would occur. It’s estimated that of the 3,000 to 5,000 fund managers in the US who benefit from the carried interest loophole they save an estimated $1.8 to $18 billion dollars each year from this loophole. That’s an absurd amount of money that could be going toward government programs and strengthening our safety nets. On top of that, a 2018 CBO report estimated that taxing carried interest as normal income could raise up to $14 billion dollars in revenue over 10 years. Increasing taxation on wealthy individuals leads to revenue surpluses, not deficits.
Raising taxes on carried interest doesn’t change the calculus for the investor either. Taxing carried interest won’t affect the ability of venture capitalists to invest, or other people to invest through private equity firms. Let’s be clear – no investment income would be affected whatsoever by closing the carried interest loophole. Rather, it will only get rid of an absurd loophole that gives a tax discount to people who make money off moving other people’s money around. Investing won’t suddenly stop because an unfair tax break was lifted.
Private equity fund managers are some of the wealthiest people in the world, yet they pay a lower tax rate than their secretaries or the janitors who clean their offices. As a vast majority of Americans struggle to make ends meet in uncertain economic times, the last thing we should be doing is catering to the needs of a couple thousand suits from Manhattan. Wealthy fund managers pay millions of dollars to lobby Congress to create laws that benefit only them.
Ultimately, a tax benefit for private equity and venture capital managers’ bonuses is not critical to our economy and we should not legislate as though it is. We urge Congress to ignore the Chamber of Commerce and finally move to tax these wealthy individuals so we can fund the investments our country desperately needs.