Tax change would hobble deals, say execs

Private equity executives today warned the Senate Finance Committee that higher taxes on carried interest would hobble enterprises. “The tax treatment of this ownership structure [a private equity partnership] is well settled by case law and administrative rulings of the IRS, and is anything but a ‘loophole,’” said Bruce Rosenblum, partner and managing director of The Carlyle Group, in his testimony. Proposed legislation would tax carried interest as income and could hit a rate as high as 35% rather than at the 15% capital gains rate. Proponents of the current policy say that higher taxes would discourage entrepreneurship and hurt the economy. “There will be deals that won’t get done, entrepreneurs that won’t get funded, and turnarounds that won’t be undertaken,” he said. However, William Stanfill, founding partner of Trailhead Ventures L.P. in Denver, said that “there is more than a hint of Chicken Little” in the industry’s worries. A “special tax break” for fund managers and private equity execs was also unfair to workers in general, he added. “After all, a gifted teacher who is training and inspiring and challenging our children and enriching human capital gets no such special treatment,” he said.