The W$J reports this morning that:
Some prominent Democrats are beginning to rethink proposed tax increases on hedge-fund and private-equity managers’ earnings, after an aggressive pushback by industry lobbyists and arguments that the impact could extend far beyond Wall Street. …
“When you first hear about it, it seems like, ‘Yes, this looks like an appealing way to generate a lot of revenue,’ but when you study it more it seems like there are some serious unintended consequences,” said Rep. Brian Baird of Washington, a member of a coalition of centrist Democrats who often play a deciding role on business and tax bills.
It’s true: Any tax increase can have unintended consequences. They don’t necessarily have to be bad consequences, though. Raising taxes on private equity and venture capital partners and some hedge fund managers (many hedgies don’t get the tax break) might cause our rivers to run with chocolate and our air to smell minty fresh, all the time. Hey, you never know.
And I just feel the need to repeat that, if you’re talking logic and consistency, there is no conceivable reason for these people’s carried interest to be taxed as capital gains (at 15%) instead of earned income (35%). It’s compensation–just like CEO stock option gains and investment banker bonuses, both of which are taxed as income. The private equity people have no argument. So they go instead with “unintended consequences.” It’s the last refuge of the tax code scoundrel.