Note: I’ve decided to move this post back up top for the next day or two — since the issue has struck a nerve among peHUB readers.
Several Democratic congressmen have introduced legislation that would change the tax treatment of carried interest — from capital gains to ordinary income. It would apply to all “investment management firms” — which would include venture capital funds, mezzanine funds, growth equity funds buyout funds, hedge funds and real estate funds.
You can download the bill here:
Investment Mgmt Services Signed.pdf
Here is a fact sheet — FactSheet.doc – provided by bill sponsor Rep. Sander Levin (D-MI).
Levin said the following, in a prepared statement: “Investment fund employees should not pay a lower rate of tax on their compensation for services than other Americans. These investment managers are being paid to provide a service to their limited partners and fairness requires they be taxed at the rates applicable to service income just as any other American worker.”
Levin also was just interviewed on CNBC.
The National Venture Capital Association has just issued the following statement:
“The Bill proposed today by House Democrats to change the taxation of carried interest from a capital gains rate to an ordinary income rate is extremely concerning to the venture capital community. We assert that carried interest in the venture capital business model is a true capital gain and should continue to be taxed at that appropriate level. This proposed legislation could have far reaching, negative implications for the start-up community, venture capital investment, and the US economy. It is critical that legislators identify and fully comprehend the unintended consequences of this proposal as it could impact one of the country’s most important economic engines. We look forward to continuing a dialogue with members of Congress on this issue as the legislative process continues.”