Private equity group defends carried interest break

The private equity industry is pushing back on Democratic attempts to end the tax break for carried interest that is used by private equity groups and hedge fund managers.

The White House and top Democrats on Capitol Hill say that taxing carried interest as capital gains instead of ordinary income is unfair, and that the tax break should be on the table in negotiations over rolling back the sequester and other fiscal issues.

But in a new Web video, the Private Equity Growth Capital Council says that taxing carried interest as capital gains is a century old, and that it rewards the “uniquely American principle” of entrepreneurial risk.

The video adds that carried interest helps those that invest capital and funds, and help businesses operate as well.

“By fairly treating carried interest as a capital gain, the U.S. tax code is providing an incentive for private equity to take risks, invest hundreds of billions of dollars of capital in new and existing businesses and contribute sweat equity to improve those businesses over time,” the video says.

Following the recent “fiscal cliff” deal, the top tax rate for capital gains is 20 percent, while the ordinary income rate tops out at 39.6 percent.

Democrats have essentially said that the carried interest break allows for hedge fund managers and private equity executives to get the capital gains rate for managing other people’s money – something they say should be taxed as regular income.

Jay Carney, the White House press secretary, said Tuesday that it was fair to target “hedge fund managers who pay a much lower tax rate through the carried interest provision than average folks who drive a bus or walk the beat in a municipal police department or teach our kids.”

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