Obama on Monday pitched a plan, which uses tax increases and entitlement cuts, to slash the federal deficit by $3 trillion, according to the New York Times. In the PE world, it’s the President’s introduction of the so-called “Buffett Rule” — and the plan to change the tax treatment of carried interest — that is getting tons of play.
Obama called to overhaul the tax code, Bloomberg News reported Monday. His plan aims to eliminate the “special lower rates for the wealthy,” which were “meant to be temporary,” the story says.
Changing the carried interest tax isn’t a new idea from Obama. Last year, the President lobbied to have carried interest earned by investment managers taxed as ordinary income. That went no where (although a compromise proposal did pass the House).
The issue got a shot in the arm when the Oracle of Omaha in an August Op-Ed piece for the NY Times complained that he was taxed at a lower rate than his secretary. So, Obama came out with a rule (which is part of his overall, deficit reducing plan) and named it after Warren Buffett. The measure calls for a new minimum tax rate for individuals making more than $1 million a year, the New York Times says (there is also a fake twitter account for Buffett’s secretary @BuffetSecretary which is fun. “You know, I’m actually okay with the amount I pay in taxes,” the mysterious person tweeted today).
But back to business. The Private Equity Growth Capital Council today came out with their “Fact vs. Fiction” rebuttal to the Op-Ed piece that inspired the Buffett Rule. Obama’s deficit reduction proposal relies on a series of “inaccurate generalizations” about carried interest, the PEGCC says. Obama’s mandate includes a “more than 150% tax increase on investments in real estate, venture capital, private equity, and many family owned businesses,” the Washington trade group says.
Carried interest, in fact, is not earned by JUST the rich, PEGCC says. In fact, all investment partnerships are taxed the same way, including real estate, venture capital, private equity, and many family owned businesses. The PEGCC said there are 15.5 million U.S. partners invested in 2.5 million partnerships.
PEGCC said it’s a fallacy that the current treatment of carried interest provides no benefit to the country. In fact, the current tax treatment aims to “reward those who take entrepreneurial risk,” which the trade group calls a “uniquely American principle.”
“The carried interest rules allow those who invest their hearts, souls, and expertise in an enterprise to also be rewarded for taking the risk of creating something,” the PEGCC said. To read more of the PEGCC rebuttal go here.
So what does this all mean? The carried interest debate will continue…