Carried Interest Explained in Video

By at 14 February, 2013, 3:10 pm

by Raymond J. Keating-

If a picture is worth a thousand words, then perhaps a short video is worth a million words.

A new video on carried interest from the Private Equity Growth Capital Council (PEGCC) helps to clarify an issue that has been muddied and misunderstood.  In their quest to find new tax revenues, some in the Congress and the White House want to change the current tax treatment of carried interest – a move that would undermine entrepreneurship and capital access for promising enterprises.

What is Carried Interest?

Carried Interest Screenshot 
“Private equity is an important driver of economic growth in the US with firms investing hundreds of billions of dollars into the U.S. economy each year,” notes the Private Equity Growth Capital Council. Click here to watch a short whiteboard video about a commonly misunderstood aspect of private equity: carried interest.
As noted in a PEGCC press release early this month: “Recent proposals from some policymakers to change the tax treatment of carried interest highlight a general misperception of what carried interest is and why it is appropriately treated as a capital gain. In an effort to better explain carried interest, the Private Equity Growth Capital Council released…a new educational whiteboard video entitled, ‘What is Carried Interest?’ to address common misconceptions about carried interest.”
As noted in the statement, and explained nicely in the video, “Carried interest is taxed at the capital gains rate because it is a profits interest on a long-term capital asset.  This policy encourages the risk taking that is required to save, start and grow companies. Changing the taxation of carried interest would upend a long-standing, successful policy that has helped America prosper for more than 100 years. It is commonplace in partnerships including private equity, venture capital, real estate partnerships and general business partnerships.”
In this short video, the point is made: “For 100 years, the U.S. tax code has appropriately treated carried interest as a capital gain. The rationale is based on the uniquely American principle of rewarding those who take entrepreneurial risk, whether that risk involves investing capital, or operational expertise, or in the case of private equity, both.”
Watch the video. In a mere three minutes and 18 seconds, this video clears away the underbrush of class-warfare, anti-growth politics on this issue, and makes clear the economics and legitimate tax policies as applied to carried interest.  For the sake of U.S. entrepreneurship, capital formation and economic growth the video needs to be required viewing by every Member of Congress and Obama Administration policy staff. 


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


Keating has written two new books titled Root of All Evil? A Pastor Stephen Grant Novel, and An Advent for Religious Liberty: A Pastor Stephen Grant Novel.


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