Thursday, June 24, 2010
Class-warfare politics has a way of doing damage well beyond its intended targets. Consider how the Democratic plan to raise taxes on "carried interest" will also sock it to a family business near you.
Democrats want to raise carried-interest taxes from the current 15% rate to the top income tax rate, scheduled to hit 39.6% on January 1. The sales pitch is that this will only whack hedge fund managers and other unsympathetic types. Yet Democrats wrote the law so broadly that it may sweep up millions of Americans in family partnerships.
This would be a huge hit to the estimated 6.5 million folks invested in real-estate partnerships, who own assets ranging from a local house to a commercial shopping center. The legislation also potentially hits any partnership invested in certain specified assets, including families who own, say, an auto dealership, fishing boat, construction company or securities.
These partnerships are at risk because of the logic Democrats have used to justify their tax hike. The taxers argue that fund managers receive carried interest as compensation for a service performed—managing other people's money—and so should be taxed at ordinary income rates. Never mind that Congress previously deemed carried interest to be investment income, at-risk capital that deserved to be taxed at a lower rate. ...
Mark this down as one more example of how the Democratic scramble for revenue will hurt millions of Americans who are far from wealthy. Democrats are rewriting a half century of partnership tax law with no hearings, no analysis and little debate. And they wonder why businesses are creating so few jobs.