NCPA - National Center for Policy Analysis

DON'T TINKER WITH SUCCESS

September 11, 2007

For years, private equity investment partnerships -- large and small -- have helped drive the economy by strengthening the companies in which they invest.  But now Congress is considering legislation that would single out private equity investment partnerships for a tax increase of 133 percent, says Douglas Lowenstein, president of the Private Equity Council.

Consider:

  • Today, private equity firms' 20 percent profit shares (80 percent goes to investors) are taxed as long-term capital gains at a rate of 15 percent -- just like similar profits earned by every other partnership.
  • Some argue that private equity partners are really no more than money managers who take no risks and whose earnings ought to be taxed as ordinary income (at a maximum rate of 35 percent).
  • But money managers don't own and grow companies, private equity owners do; partners not only risk their own capital, they also risk time, energy and talent.

This huge tax increase could lower returns for pension funds and other investors; result in fewer investments in smaller, riskier companies; drive capital out of the USA; and ultimately restrict capital gains tax treatment to only those who already have money, says Lowenstein.

Congress should think long and hard before it tinkers with a business model that is both equitable and fair and has delivered so much value to the nation, says Lowenstein.

Source: Douglas Lowenstein, "Don't tinker with success," USA Today, September 10, 2007.

 

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