Congressional Republicans Must Reject Tax Increases On Carried Interest

For the last four years, Congressional Republicans have been steadfast in supporting pro-growth tax policies and opposing every single Democratic proposal to raise tax rates on work, saving, and investment. They will soon have another chance to protect the economy and reject the latest anti-growth, anti-investment tax increase.

Nineteen free market groups have sent a letter to Congress urging Members to reject legislation to raise taxes on carried interest investment income. This legislation has been introduced by Senators Tammy Baldwin, Elizabeth Warren, and Bernie Sanders, and would increase the tax rate on this investment income by a staggering 70%, from 23.8% to 40.8%.

This new tax increase would hurt economic growth and American innovation, discouraging the investment needed to grow our economy. The higher tax would have a widespread impact on the economy, hitting private equity, venture capital, and real estate investments. According to a study by Yale University, raising taxes on carried interest would significantly hamper venture capital investments in startup companies.

This tax increase would threaten new investments across America. The private equity industry invested more than $5.6 trillion after the 2017 tax cuts incentivized long-term capital investment. The industry has invested in 39,000 small businesses, $1.4 trillion in more than 11,000 manufacturing companies, and more than $230 billion in the energy sector.

A higher tax rate on carried interest would threaten American innovation. Private equity and venture capital firms are funding the AI race by investing heavily in artificial intelligence, funding AI startups, and providing the capital they need to develop and grow.

Since 2020, private equity has provided capital to thousands of companies pushing American innovation. The industry has invested over $1 trillion into information technology, powering innovation advances in medical devices, cybersecurity, and artificial intelligence.

Over the next five years, the private equity industry will invest over $3 trillion across the country. But a new tax on investors and entrepreneurs would stifle the investments needed to grow the economy. A study by USC Professor Charles Swenson found that raising taxes on carried interest would cause the loss of nearly 5 million jobs, $100 billion in tax revenue, and $3 billion in retirement earnings in public pension funds.

A higher tax on carried interest investment income would make the U.S. rate higher than virtually every country we compete against. The higher rate would drop the U.S. behind China, Japan, Singapore, Switzerland, and most of Europe, making us less competitive around the world.

Congressional Republicans have been consistent in their support for pro-growth tax policies which benefit working people, small businesses, and the U.S. economy. They should reject this latest damaging tax increase, and retain the current carried interest tax treatment that encourages long-term investment and growth.