The National Venture Capital Association on Tuesday asked the Senate to exempt venture capital firms from legislation that would require investment partnerships to pay ordinary income tax on carried interest.
In a letter to all senators, Kate Mitchell, NVCA chairwoman, said that an exemption is warranted because venture capital firms create jobs. “Now a tax hike on carried interest could cut venture capital out of the equation at a time when we need those jobs most,” Ms. Mitchell said in her letter, which included more than 1,700 signatures from venture capital representatives, entrepreneurs and concerned citizens, according to an NVCA news release.
“No other asset class invests in creating companies from the ground up,” added Emily Mendell, an association spokeswoman, in an interview. “Removing an incentive for venture capital investment is at cross purposes with economic recovery.”
Under current law, the carried interest from investment partnerships is taxed as a capital gain at 15%. A legislative provision under consideration in a tax bill now before the Senate Finance Committee would tax carried interest as ordinary income, at a rate of up to 35%.
Robert Stewart, a spokesman for the Private Equity Council, said: “We believe carried interest is properly treated as a long-term capital gain, and we believe our private investment firms ought to be treated equally.”
In a recent alert to his members, Jeffrey DeBoer, president and CEO of the Real Estate Roundtable, said: “Imposing a tax increase of this magnitude on commercial real estate now would be akin to kicking the crutches out from a patient struggling to get back on its feet.”
Steven Hinkson, a spokesman for the hedge fund industry’s Managed Funds Association, declined to comment.
Scott Mulhauser, a spokesman for Senate Finance Committee Chairman Max Baucus, D-Mont., had not returned calls by press time.
