Private Equity continues to be concerned that some type of "tax extender" bill will be passed by Congress, which will result in significant parts of PE income being taxed as regular income as opposed to capital gains rates. PE's lobbying arm, the Private Equity Council, has just sent out an email to all its members urging them to meet with Congressional lawmakers in their areas to put the kabash to any such tax extenders. EPJ has obtained a copy of the PEC email and we reproduce it in full below.
As Congress returns for the month of July, there is a continuing risk that the carried interest and enterprise value tax increase proposal will return in some form as work resumes on pending bills to extend unemployment insurance, provide incentives to small businesses, and renew expiring tax provisionsAs reported earlier, before adjourning for the holiday recess, the Senate failed three times to gain the 60 votes required to end debate to pass the so-called "tax extenders" legislation, which included the carried interest tax hike. On all three votes, every Senate Republican, along with Nebraska Democrat Senator Ben Nelson, voted against the bill.
This week, Senators are expected to vote on extending unemployment insurance separately from the rest of the tax extender legislation, to which the unemployment measure previously was attached. The fate of the remainder of the extenders bill is unclear, especially because a few of its pay-fors - such as international taxes, as well as carried interest, enterprise value and family business taxes - remain unpopular with many lawmakers.
Under the Senate proposal that was defeated on June 24, carried interest would be taxed as 75 percent ordinary income and 25 percent long-term capital gains beginning on January 1, 2011, pushing the effective tax rate on carry to 34.7 percent. Carried interest on the sale of assets held for more than five years would be taxed as 50 percent ordinary income and 50 percent long-term capital gains.
The legislation also would tax as ordinary income most of the proceeds that a general partner receives from selling his or her partnership interest. This "enterprise value tax" provision would make investment
partnerships the only businesses in America where the goodwill value inherent in the enterprise would be ineligible for long-term capital gains rates, if the overall enterprise or part of it were sold.
While the momentum that was pulling the carried interest plan toward enactment has slowed, the proposal is far from dead. It is essential that PE and growth capital firms use the coming weeks, and especially the August congressional recess, to plan visits with their lawmakers while they are home. We encourage you to invite your lawmaker to visit the portfolio companies you own in their state or congressional district to discuss the jobs and economic value they create. The Private Equity Council can help you reach out to your lawmakers and coordinate such meetings. If you would like more information, please contact us here.
The PEC is also interested in matching PE and growth capital firms with media outlets in your state to discuss the investment partnership business model and the benefits investment partnerships deliver to
state economies.
If you are interested in scheduling portfolio company visits with your lawmaker or speaking to the media in your state to talk directly to the opinion leaders on how this legislation will affect your firm and portfolio companies, please contact us here.
In addition, we also ask that you forward this email to other private investment firms in your network and invite their partners to join in the effort. Let's work collectively as an industry to inform all opinion leaders of the benefits that private equity investment partnerships provide to the American economy.
Thank you.
The Private Equity Council
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