Carried-Interest Acquires Favor

Governor Kasich suggests that “changing the incentives for investment and risk-taking” is akin to socialism while others assail elimination of this special treatment equivalent to a tax-increase which the GOP views as counter to republican orthodoxy.

Typically this tax-advantaged treatment occurs in the case of Fund Managers who receive, in the form of compensation, an equity share in the very fund(s) they manage. These “funds” distribute their gains (to their equity participants/investors) which are normally taxed at Long-Term Capital Gain rates. The Fund Manager’s claim is that since their compensation is in the form of an equity interest their distributed gain should be similarly taxed at the more favorable long-term capital gains rate; so far they’ve successfully defended this position using several scurrilous arguments, the primary one being similar to that offered by Gov. Kasich.

I believe their argument(s) is, at best, flaccid for the following reasons:

(1) Reward is compensation for risk and should (reward) be sufficient incentive for any Fund Manager and since the Taxpayer receives no value/benefit why then should government be used to either assure or insure their reward.

(2) Regardless of how the system may label their income it is absolutely the case that it is Compensation and not an investment any more than a salary or wage earner is an Investor by way of their investing their time (at work) in exchange for a paycheck. Engineered Bias has no place in a Tax System other than the one that naturally occurs and is a function of the amount of your income (i.e., the more you earn the more you pay) and why a flat-tax-no-loophole system is the most equitable. If you’re going to surcharge, which I think is completely unjust, high-income earners than I would pool those tax revenues into a national trust used only and specifically for the following: (a) National Debt Reduction. (b) College Matching-Fund Grants.

(3) To  provide premium support for Indigent & Senior Health Care coverage which is a key component of a functional health care system more fully described in my book “Valor in Prosperity.” We must not allow National Government, at any level, to be used to favor one influence over one with no such influence; holding true to this ideal allows a representative democracy to function as it should.  .

Curtis C. Greco, Founder

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