New Report Predicts Changes to Treatment of Carried Interest Would Threaten Jobs, Slow Housing Construction

A recently released report warns that proposed tax increases on carried interest could significantly harm the U.S. economy, increase the federal deficit and jeopardize millions of jobs.

Preserving the capital gains rate of carried interest remains a top priority of ICSC.  In a recent survey of ICSC members, 53% reported that more than half the projects they are working on would not have happened without the capital gains treatment for carried interest (AKA “the promote”).

Higher Federal Deficit – Increasing taxes would result in reduced incentives for real estate, venture capital and private equity to invest in longer-term, productive projects. Estimated net federal revenue losses could be up to $1.2 billion in the first year of implementation, increasing to as much as $12.84 billion annually after 10 years – totaling $70 billion over 10 years. 

Fewer American Jobs – Real estate, venture capital and private equity partnerships and their portfolio companies account for an estimated 32 million American jobs. Many businesses that would normally seek private investments may be unable to find financing and fail, leading to an estimated loss of at least 1.23 million well-paying jobs for American workers.

One of the Highest Investment Tax Rates in the World – Proposed carried interest capital gains tax increases would raise the U.S. investment tax rate to 40.8% – higher than those in China, Canada, and many European countries. This undermines efforts to make the U.S. more attractive for private investments that support American manufacturing, energy production, and housing construction.

Less Housing Construction – The U.S. is in the midst of a housing shortage, with an estimated 5.5 million new housing units needed to keep up with demand. Raising taxes on real estate investments will further discourage development in a crucial sector that impacts every American. 

Less American Innovation – Increasing carried interest capital gains tax rates to ordinary income tax rates removes the existing tax incentive alignment between entrepreneurs, venture capitalists, and limited partner investors to make longer-term high-risk investments.  Venture firms would likely switch to less risky investments – which will lead decrease innovation, particularly in the high tech and bio-tech industries.

Lost Retirement Earnings – Private investments deliver the strongest returns for public pensions and strengthen retirement savings for more than 34 million public workers. Public pension funds supporting retirees could lose up to $520 million annually since they would be forced to shift into lower-yielding investments.

Click here to tell Congress and the Administration that maintaining the current carried interest provision is valuable to thousands of small and family-owned CRE businesses across the country.

For more information contact Phillips Hinch at phinch@icsc.com.