Money manager Clifford Asness and the CEO of the Managed Funds Association, Richard Baker, who is a former congressman, take similar approaches in their opinion pieces arguing against the proposed "enterprise value" tax that would apply ordinary income tax rates rather than long-term capital gains rates to the sale of investment services partnerships.
Here's Mr. Asness, writing for Bloomberg News:
Under the bill, part of a particular type of income earned by some investment firms, known as carried interest, might be taxed at the 35 percent rate for earned income compared with the 15 percent capital-gains rate they now pay. Fighting this change isn't our purpose here. Whether carried-interest income should be taxed as ordinary income or as capital gains is a subject of legitimate debate, typical of any business taxation issue.
He goes on to fight the enterprise value tax, having set aside the carried interest issue.
Here's Mr. Baker, writing for the Wall Street Journal op-ed page:
This new, higher "enterprise value tax" is not part of the contentious debate over the taxation of "carried interest." It is true that the Senate bill also would eliminate capital gains tax treatment for carried interest—which is the name for an accounting practice that's used to distribute revenue to the general partners in certain kinds of partnerships. Carried interest, however, has nothing to do with the sale of a business. Nevertheless, policy makers eager to raise revenue have tried to obscure the distinction between the two.
A lot of hedge funds have high turnover in their holdings, or they trade options, so that they are already paying ordinary income tax rates on their "carried interest" rather than the long-term capital gains rate that applies to stock held for at least a year. Ceding the carried interest point, or at least not focusing on fighting it, gives Mr. Asness and Mr. Baker an aura of moderation: "Look, I'm a reasonable guy here. I'm not opposed to all tax increases on fund managers, just this particularly bad one on enterprise value." Maybe they are tactically correct, and this approach will succeed in defeating the enterprise value tax.
An alternative approach would have established the principle that the capital gains of investment managers should be taxed at the same rates as everyone else, whether those gains come as "carried interest" or upon the sale of an enterprise. That's the argument I tried to make in my Washington Examiner article on taxing "carried interest." In other words, as much as Mr. Asness and Mr. Baker insist that "carried interest" and "enterprise value" are two different debates, in a significant sense, they are part of the same debate. They both attack the differential tax rate for capital gains on long term investments, and they both single out managers of investment partnerships for special treatment under the tax rules.