In Defense of the Current Treatment of Carried Interest
2 Pages Posted: 12 Jun 2013
Date Written: June 3, 2013
The Obama administration and several commentators have asserted that the current taxation of so-called ‘‘carried interest’’ at capital gains rates is wrong and unjustified. Their case for this change is based on their characterization of the distributions to the partners in question as payments for their services. If that characterization were correct, there would be a very strong case for ordinary income treatment. This letter to the editor explains that, to the contrary, that characterization is erroneous. When the nature of the transaction is examined, it is clear that capital gain treatment is entirely consistent with tax policy and is appropriate.
Keywords: Carried Interest, Venture Capital, Capital Gains, Ordinary, Partnership, Investment Manager, Capital, Labor
JEL Classification: H20, H24, H25, H26
Suggested Citation: Suggested Citation