Something called the Access to Capital Coalition announced its formation today, in order to argue that taxing carried interest as ordinary income would be particularly burdensome for minority-and-women-owned firms and the entreprenurs they fund.
The group’s members include a variety of trade associates, Robert Johnson of RJL Cos., Willie Woods of ICV Capital Partners, Louis Nogales of Nogales Investors and basketball legend-turned-movie theater mogul Magic Johnson.
They should be ashamed of themselves for injecting race and gender into this conversation. There are plenty of reasons to be against the tax change – and better reasons to support it, in my estimation – but this isn’t one of them.
I spoke to Willie Woods this morning, to understand how a color-blind tax change would disproportionately affect minority-and-women-owned businesses. He said that it would affect all small-and-mid-sized businesses equally, but that more minority-and-woman-owned businesses happen to be small and mid-sized. He said the figure was 99 percent. Even if true, there are two big problems with his argument:
- Not nearly all of those 99% are private equity-backed, or even want to be private equity-backed. The majority of small businesses are backed by bank loans or other forms of financing that never involve carried interest. It’s a partial red herring.
- There is still no evidence that a change to carried interest tax treatment would significantly reduce the amount of available capital to entrepreneurs. I asked Woods about this, and he said it would come down to a labor issue. In other words, fewer people would go into VC/PE (Woods is a former I-banker who said he shifted jobs for the better tax treatment). What he couldn’t answer, however, was how VC/PE did just fine during the Clinton years, under a much higher capital gains tax rate. The industry hardly had a personnel shortage. Again, red herring.
I wish opponents of the tax change would just be honest: You don’t want to make less money. It may not be the most politically-astute argument, but it’s at least legitimate. The rest is just for show…