Jennifer Connell Dowling: Carried Interest & the Debt Ceiling

In recent days there have been many media reports about proposals to avert the debt ceiling crisis. Some discussion has focused solely on spending cuts; other ideas reportedly include the possibility of both spending cuts and revenue raised from eliminating certain tax credits. While nothing has been officially presented, the concept of changing the taxation of carried interest has once again surfaced as a potential target for revenue. Here is what we understand the current situation to be:

Any debt ceiling package must ultimately be supported by a combination of Republicans and Democrats. While that may seem intuitive, the dynamics within each political party are challenging (think Tea Party Republicans in the House), and become more so when the dynamics within each Chamber of Congress (House and Senate) are also factored into the equation. The political leaders of each party and of each Chamber are balancing the needs of their respective Members, and assessing how any decision will affect the fate of those Members in the 2012 election.

Those assessments are dynamic, leading to a fluid situation where ideas and concepts are being continually formulated, tested, shot down, or applauded – and we expect that to be the case until the ink is dry and an agreement is announced. The discussions about tax expenditures, tax loopholes, and necessary or unnecessary tax credits have become the public proxy for those calculations. In other words we advise stakeholders to stay informed but NOT assume that everything you read in the press is accurate or complete. It is reasonable to assume that the situation is changing hourly.

About the only certainty in this situation is that it would be extremely difficult for Congress to enact a massive tax reform measure involving lowering the corporate rate and significantly restructuring the tax code in the timeframe required to avert the debt ceiling crisis. Whether revenue will ultimately be included in the debt ceiling package is unclear, but proposals that raise revenues piecemeal through changes to certain provisions may indeed ultimately occur.

The groundwork on communicating the problems with changing the carried interest tax rate for venture capital has been well set and we continue to stay in close touch with lawmakers on our issues. Congress is aware that raising the taxes of long term investors who are building companies is not consistent with their goals of job creation and economic recovery. We are optimistic that our position will be considered as proposals are developed and vetted within Congress and the Administration.

The next 48 hours are likely to be critical ones in setting the parameters for any final agreement, given the shear logistics of actually writing a deal into legislation and then voting on that legislation in both the House and Senate prior to Treasury’s August 2 deadline for default on the nation’s debt. We will be updating here at NVCAccess as developments occur.

Jennifer Connell Dowling is VP of Federal Policy & Political Advocacy with the National Venture Capital Association. Opinions expressed here are entirely her own. View her original post here.