Congressman Pete Olson

Representing the 22nd District of Texas

Big Government Op-Ed

June 22, 2010

Big Government
Tax Increases Won’t Create Jobs

By Rep. Pete Olson

Recently, my colleagues in the U.S House of Representatives passed a bill that will undoubtedly further harm our already weakened economy by discouraging investment in businesses and real estate. With national unemployment at 9.5% and no sign of relief in sight for the real estate market, now is no time to be discouraging this type of investment and the jobs that it creates.

The American Jobs and Closing Tax Loopholes Act (HR 4213) that passed the House by a narrow margin included an extraordinary tax increase on carried interest returns from successful investments by real estate, venture capital, and private equity partnerships. This revenue is currently taxed at the 15% capital gains rate, which is already scheduled to increase to 20% next year. Carried interest provides incentive for investment partners to take the risky investments that are needed to create jobs and boost the economy.

The U.S. Senate expects to vote on the bill in the coming weeks. Senator Max Baucus introduced a compromise amendment that would tax a smaller portion of the carried interest revenue at the new higher rates, but the impact of any tax increase on carried interest will still be harmful and widespread. I will not vote for any bill that includes a tax increase on carried interest, and I will urge my colleagues to join me in opposition.

What’s most alarming about this tax rate increase is that it is deeply punitive on the very businesses we need to help stabilize our economy. The increase would overturn decades of partnership tax law, and these partnerships would be the only businesses in the country whose enterprise value would be taxed at the income tax rate rather than the capital gains tax rate. These partnerships would be unfairly punished for the mistakes of a few Wall Street managers, despite the fact that these partnerships are in the best position in our economy to continue to create and grow businesses and jobs.

Additionally, the carried interest revenue is often pumped right back into the economy.  Typically investment partners use the revenue of successful investments to invest in new small businesses and commercial properties, and expand and restore existing investments. This leads to job growth and economic investment in communities.

The Private Equity Council just released a study on the impact of a tax increase on carried interest. They found that a tax increase of just one percentage point would cause investment to decline by $1.8 billion. The House bill’s proposal would cause investment to decline by $27 billion.

Without the tax increase, these partnerships will be investing $27 billion in jobs and the economy. That’s a lot of money, and a lot of jobs.

It’s clear that a tax increase, especially an increase of the magnitude passed by the House, would be a bad move for the economy. Our nation must focus on getting real estate investment, employment rates, and the general economic outlook back up, not loading down the economy with unfair tax increases.

I’ll be voting against the tax increase on carried interest when it comes back over to the House, and I urge my Senate colleagues to do the same.