Wednesday, April 30, 2014

U.S. Tax Reform Bill Proposes Increased Taxes, Weakens Investment

COAST exists to limit tax rates and spending at the federal, state and local levels. However, U.S. Chairman of the House Ways and Means Committee, Dave Camp’s (R-MI), recent tax reform proposal includes tax increases that may not appear ill-intentioned, but the long term impacts will affect business expansion and job creation.

Carried interest is the profit share received by general investment partners when capital assets are sold. Investment partnerships occur in the U.S. in the venture capital, real estate, private equity and other projects that require a large, upfront capital.

Currently, carried interest is taxed as capital gains, which is typically in the 20% range. The maximum tax rate on capital gains, like carried interest, actually recently increased in 2012 from 15% to 23.8%. Provisions in Rep. Camp’s tax reform bill would increase this rate on carried interest as high as 35% and no longer give it the same treatment as capital gains.

One troubling aspect of Chairman Camp’s proposal to increase tax on carried interest can be found in its’ similarities to President Obama’s latest budget.  President Obama wants carried interest tax rates to align with normal income to a max of 43%. Carried interest has long been taxed as capital gains to encourage investment. As the economy continues to recover, raising taxes on investment will perturb job growth numbers, development projects and overall economic health.

Rep. Camp’s bill unfortunately does not stop with carried interest. Provisions outline a plan to add a taxation layer on publically traded partnerships. These entities grow and start businesses and are currently taxed as corporations, meaning they already pay a corporate taxes and owners pay taxes at the individual level on corporate distributions. Another taxation level will force many publicly traded companies to make fewer investments, resulting in similar economic impacts as carried interest tax increases.

COAST stands firmly by its principles of limiting tax rates and decreasing government interference. Rep. Camp’s tax reform bill threatens these core conservative values. Raising taxes is not a solution for increasing government revenues. This approach will cost constituents and businesses jobs and economic stability. We cannot allow Congress to increase taxes, especially on investment. 

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