Percy Prepares Carried Interest Tax "Friends" List
For all of Percy's posts on the taxation of carried interest, click here. For Percy's enemies list, click here.
I'm happy to report that people are beginning to understand and speak out against the unfairness and disastrous economic effects that would result from tax hikes targeting investment managers' carried interest. Here are some friendly voices (in no particular order):
1. Los Angeles Times editorial board: "But unlike typical employees, they are effectively plowing much of their potential salary back into their acquisitions. That's no different from those who start a business, take a reduced salary while building up clientèle, then sell the company. The profits from that sale are rightly taxed as capital gains."
2. Wall Street Journal Editorial Board: "There's no good rationale for this beyond the fact that Congress wants money and private equity funds have lots of it."
3. Equity Private (of Going Private): "[Andrew Ross] Sorkin [Percy's Enemy No. 1] is a dangerous fool who is prone to do some serious damage wandering around carrying a Louisville slugger with nails driven through it while wearing a red bandanna fashioned into a blindfold and swinging wildly at dangling financial issues in the middle of a seven year old's birthday party."
4. Jonathan Axelrad, tax lawyer, Wilson Sonsini Goodrich & Rosati: "If you change the fundamental rules of partnerships, it will have huge ramifications for the overall structure of the economy. The IRS has plenty of ways to tax a fee or salary. If carried interest were merely a disguised fee, it would not be difficult to tax as ordinary income."
5. Dick Kramlich, founding partner, New Enterprise Associates: "Six years of sweat and one year of pure bliss. If anything is a capital gain, that's it."
6. Douglas Lowenstein, President, Private Equity Council: "Public and private pension funds, foundations and university endowments have chalked up returns from private equity investments that far exceed those available from the stock market. Between 1991 and 2006, private equity firms worldwide created more than $430 billion in net value for these and other investors. These funds translate into stronger public employee pension programs, more funds for college financial aid and scholarships and more funds for research and other causes supported by charitable foundations." [Not tax related, but good p.r. from a hired gun.]
[Note: Thanks to Daniel Shaviro, Wayne Perry Professor of Taxation at New York University Law School, for alerting me to the L.A. Times editorial and to Eric Fink, NYU law grad and soon to be law professor at Elon University in Greensboro for alerting me to Professor Shaviro's post. Professor Shaviro appears too sympathetic to changing the tax treatment of carried interest, but I haven't added him to my carried interest tax enemies list, yet.]
I'm happy to report that people are beginning to understand and speak out against the unfairness and disastrous economic effects that would result from tax hikes targeting investment managers' carried interest. Here are some friendly voices (in no particular order):
1. Los Angeles Times editorial board: "But unlike typical employees, they are effectively plowing much of their potential salary back into their acquisitions. That's no different from those who start a business, take a reduced salary while building up clientèle, then sell the company. The profits from that sale are rightly taxed as capital gains."
2. Wall Street Journal Editorial Board: "There's no good rationale for this beyond the fact that Congress wants money and private equity funds have lots of it."
3. Equity Private (of Going Private): "[Andrew Ross] Sorkin [Percy's Enemy No. 1] is a dangerous fool who is prone to do some serious damage wandering around carrying a Louisville slugger with nails driven through it while wearing a red bandanna fashioned into a blindfold and swinging wildly at dangling financial issues in the middle of a seven year old's birthday party."
4. Jonathan Axelrad, tax lawyer, Wilson Sonsini Goodrich & Rosati: "If you change the fundamental rules of partnerships, it will have huge ramifications for the overall structure of the economy. The IRS has plenty of ways to tax a fee or salary. If carried interest were merely a disguised fee, it would not be difficult to tax as ordinary income."
5. Dick Kramlich, founding partner, New Enterprise Associates: "Six years of sweat and one year of pure bliss. If anything is a capital gain, that's it."
6. Douglas Lowenstein, President, Private Equity Council: "Public and private pension funds, foundations and university endowments have chalked up returns from private equity investments that far exceed those available from the stock market. Between 1991 and 2006, private equity firms worldwide created more than $430 billion in net value for these and other investors. These funds translate into stronger public employee pension programs, more funds for college financial aid and scholarships and more funds for research and other causes supported by charitable foundations." [Not tax related, but good p.r. from a hired gun.]
[Note: Thanks to Daniel Shaviro, Wayne Perry Professor of Taxation at New York University Law School, for alerting me to the L.A. Times editorial and to Eric Fink, NYU law grad and soon to be law professor at Elon University in Greensboro for alerting me to Professor Shaviro's post. Professor Shaviro appears too sympathetic to changing the tax treatment of carried interest, but I haven't added him to my carried interest tax enemies list, yet.]
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