In the wake of the failure by the congressional supercommittee, vigilance seems more necessary than ever as the Obama administration continues its ongoing campaign to increase taxes on those who take on personal risk to invest in and stimulate our economy. The newest assault on the investment industry—the proposal by Pres. Barack Obama and some followers in Congress to create what is being called the Enterprise Value Tax.
Under the EVT proposal, investment management partnerships would become an unfairly singled-out target of new federal taxation, becoming the only businesses in the U.S. in which proceeds from the sale of the business would be taxed at a higher ordinary income rate instead of the growth-incentivizing lower capital gains rate.
For example, if two entrepreneurs build a chain of ice cream parlors and eventually sell the business, currently the profits from the sale are taxed at the capital gains rate of 15%. If the EVT were to go into effect, sales of investment management partnerships would be segregated into a different taxing class, potentially resulting in a tax as high as 35%.
The negative impact of an EVT on private equity, venture capital and real estate at a critical time in our economy recovery is all too easy to imagine. Disincentivizing investment activities that are at the heart of stimulating the economy would neuter a driving force in the country’s revival, but some see the proposal as only a first step toward tightening the noose around profit-makers overall.
Ryan Ellis, tax policy director for Americans for Tax Reform has pointed out that: “The ultimate goal is to raise the capital gains rate. Starting with private equity makes it easier to raise the rates, because it takes them out of the fight later on.”
Instead of planting obstacles and landmines on the path to economic renewal, we should be encouraging long-term investment to create and grow companies, and create jobs. Any move to double tax rates on enterprise value would discourage investment and hurt the overall recovery.
The Washington Policy Center has a more detailed analysis of the EVT and its effect on Washington State available their website.
Please call and email your members of Congress. Tell them to cut spending, not raise taxes. Tell them that raising capital gains rates and imposing a new enterprise value tax is a bad idea that will ultimately harm America and our fragile recovery. Remind them that allowing the economy to find its footing requires that we encourage innovative investment, not punish it.
[photo credit: SP8254 – Catching Up]