Myths and Realities About Changing the Tax Treatment of Private Equity Fund Managers

Publication Date: November 2007

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Aviva Aron-Dine

Research Area: Banking and finance

Keywords: Corporate finance; Economic projections; Economic inequality

Type: Report

Abstract:

Economists across the political system generally concur that eliminating the tax break for “carried interest” income, a form of compensation received by private equity fund managers, would improve the equity and efficiency of the tax system. The tax code is more efficient when it creates a level playing field.  The fact that carried interest income is taxed at the capital gains rate while compensation for similar services is taxed at ordinary income tax rates skews economic decisions and creates inefficiency