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Tuesday, September 04, 2007

Congress moves toward tax assault on investment


Action Alert: Congress Moves Toward Tax Assault on Investment
Join the Herd

Leave it to Congress to come up with a plan to penalize investment activity with tax hikes at a time when a majority of Americans own stocks, including millions who hold investments indirectly through their retirement plans.

The U.S. House is poised to take the first step in a strategy to undo not just the 2003 capital gains cut, but perhaps raise that
capital gains tax rate to much higher levels, removing this important incentive for investment and entrepreneurship.

The House Committee on Ways and Means is set to hold a hearing on Thursday, September 6, to discuss whether to hike tax rates on so-called "carried interest" capital gains, the portion of a capital gain from a partnership investment that goes to the general partner. Hiking taxes on carried interest capital gains will spur a dangerous rush to raise taxes on all capital gains.

Why? Because the same lawmakers who consider subjecting carried interest to the capital-gains tax rate a "loophole" also believe the capital-gains tax is a "loophole" for all investors. Lawmakers' willingness to seriously consider this tax hike signals a dangerous move in the direction of subjecting all capital gains to more punitive double taxation.

Presidential candidate John Edwards' plan to nearly double the capital-gains tax rate is an early warning sign that unless attempts to tax partnership carried interest are stopped now, Uncle Sam will be knocking on the door of ma and pa investor next.

Congress is considering legislation (H.R. 2834) sponsored by Rep. Sanford Levin (D-Mich.) to increase the tax rate on carried interest capital gains. The current 15 percent capital-gains tax rate is already an unfair double tax since capital income is subject to the 35 percent income tax rate prior to being distributed to investors.

The current tax treatment of carried interests as capital gains income is correct. Raising taxes on carried interest capital gains would represent an enormous tax hike that would drive investment partnerships out of the U.S. and make it more costly for pension funds to invest in private-equity, taking a tax-bite out of retirement investment returns for millions of Americans.

Americans for Prosperity needs your help to stop this ill-conceived tax hike and thwart the tax hikes on grassroots investors that will follow. Join us in telling your Representative that increasing capital gains taxes will only hurt the individual investor and stifle the American economy. Contact your Representative today and tell them to vote "no" on any capital gains tax hike, including on general partners in investment partnerships.

The evidence is clear: Tax hikes on capital gains harm the economy. Over the past 26 years, every time the capital-gains tax rate has been reduced, a corresponding spike in investment activity has caused federal revenues from the tax to increase, while the one time the tax rate has been hiked in recent years, revenues actually declined by 44 percent over the next three years.
Click here to view a chart tracking these trends.

For more information click here to read
"An All-Out Tax Assault on Capital Gains" by AFP Policy Director

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