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Opposing Views on Carried Interest


USA Today has a pair of editorials today that both take up the question of carried interest.

The USA Today's editorial board takes the position that carried interest should be taxed at a higher rate than the current 15 percent.

The top income tax rate for most skilled executives is 35%. Middle-class workers usually pay in the 25% or 28% brackets. But a group of wily managers has figured out how to use a concept known as "carried interest" to disguise such income as capital gains and pay just 15%.

Wealthy hedge funds and private equity firms aren't the only businesses to use carried interest. So do small partnerships that develop real estate or drill for oil and gas for example. But there's no persuasive reason for not treating carried interest as ordinary income, subject to the progressive income tax.

Meanwhile, guest columnist Jeffrey D. DeBoer, president and CEO of the Real Estate Roundtable, argues against increasing that tax.

In fact, it would be a huge tax increase on countless Americans who use partnerships in all types and sizes of businesses, and it would be especially bad for real estate businesses.

It would be the first time that the sweat equity of an entrepreneur who is building a business would be taxed as ordinary income. It would discourage risk taking that drives job creation and economic growth. In short, it would have profound unintended consequences for main streets of cities all across our country. Those in Congress who recognize the dangers of this proposal should be applauded.

(Spotted at Real Estate Bloggers.)

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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