Back From The Dead: Taxing Investors

Last year, Senators Olympia Snowe and Susan Collins became key to blocking a massive Democratic tax hike on private equity and investment partnerships, a hike that would have brought tax rates on “carried interest” up from 15% to 35% and then again to 38% just a few short years later. After three separate votes, Snowe and Collins both stood with the rest of the GOP, effectively ending the Democratic plan to hit investors in the pocketbook.

At least, until the Obama Administration decided to include the same carried interest tax hike – the one that failed on the House and Senate floor only a year ago – in their Orwellian named “Jobs bill”, effectively resurrecting the provision from the dead. Snowe and Collins, as always, are both in a position to exert their influence again and with other other key New England representatives, keep this tax hike off the books once again.

The proposal to raise the carried interest tax rate failed in the past for good reason: as the NH Journal pointed out last week, while the hike is marketed as “closing a tax loophole” as a way to make a favored target (private investors) pay their “fair share,”  in reality it severely impacts domestic investment, especially in places like real estate where investment is desperately needed. For fifty years, the carried interest provisions have existed primarily for the purpose of encouraging investment by those who are in a position to do so wisely and for the long term. By allowing investment partnerships to take the interest earned on investment profits at a lower rate over a longer period of time, the tax code actually allows them not to profit specifically off of their investments into perpetuity, but to spread out losses over time, encouraging long-term commitment and continued re-investment.

In Maine, as elsewhere, there is a strong need for investment in real estate development and construction projects, which not only bring much needed revenue to states but also provide thousands of jobs nationwide. By allowing real estate investors to keep more of their money, spread out their losses and hedge against the potential pitfalls of the construction industry, the code is actually encouraging growth – a revenue source much more specific and reliable than closing a non-existent tax loophole.

Snowe and Collns will undoubtedly be key to ensuring that this Democratic attack on investments is not allowed to proceed. As before, their opposition is critical and their continued support of the GOP platform against tax increases on those who create opportunity is essential. Although the Jobs bill failed in its introductory vote, it is likely that over the next few weeks specific provisions will be cut out and brought to the floor. Snowe and Collins’ should hold firm and once again stop this bad idea from ever having a chance to see the light of day.