Carried interest proposal is a problem for NH

Support New Hampshire Businesses | NH Business Review

Measure in federal budget package poses a threat to private capital

Every year, thousands of service members transition from military to civilian life with dreams of starting down a new career path and, for some, opening their own business. Their experience serving our country provides veterans with a uniquely powerful skill set for entrepreneurship; qualities like work ethic, integrity, discipline and adaptability equip them to take any business idea to the next level. In New Hampshire, there are more than 170 veteran-owned businesses that enrich our communities and contribute to our local economy.

It is important that these veterans have our support in their endeavors and have strong, mission-focused investors behind them that can provide additional capital and resources to help them reach their fullest potential. Carried interest is the driving force behind this additional capital and, as our communities continue to navigate life during a global pandemic, it is imperative that we support legislation that protects and bolsters these investments.

As a U.S. Navy captain serving in the reserves and current private equity fund manager at Veteran Ventures Microfund LLC, I have a firsthand understanding of the impact private investment can have on veteran-owned businesses. I have seen the level of dedication, discipline and diversity veteran entrepreneurs have and believe that their contribution to our network of businesses is truly invaluable.

One study from Syracuse University’s Institute for Veterans and Military Families found that, while veterans are more likely to own their own business and out-earn their peers in their respective industries, this group has a greater challenge accessing capital, networking with other businesses and receiving mentoring from those in their communities.

Funds like Veteran Ventures Microfund recognize these challenges and the worth veterans add to the economy and work to help bridge this gap. They provide resources, industry expertise and capital to veterans across America and help them grow their businesses. At Veteran Ventures Microfund, providing veterans with investment capital that allows them to create lasting and sustainable value is our top priority and an honorable way to thank our nation’s heroes for their selfless service.

Private equity plays a critical role in the continued success of veteran-owned businesses and for the greater business industry at large. Private equity invested over $2.4 billion into New Hampshire’s economy and backed 52,000 jobs in 2020 alone. This capital is used by veteran entrepreneurs and business owners to make operational improvements, implement strategies for long-term growth and expand their market far beyond what they are capable of by themselves. That is why these partnerships with private equity are so important.

Carried interest is a key factor in the amount of readily available capital business owners can access. It exists as the share of capital gains that general partners receive in long-term private equity investments. For more than 100 years, it’s been taxed appropriately as capital gains, which both recognizes the immense risk investors are taking on to help these businesses and further incentivizes them to continue taking these risks on innovative and bold ideas.

Unfortunately, there is a proposal to add language to the budget reconciliation package that threatens this capital and New Hampshire’s economy. This harmful proposal would increase taxes on carried interest by treating it as ordinary income instead of capital gains. This would dramatically increase the amount of taxes owed by general partners, directly impacting their ability to provide services and resources to emerging entrepreneurs.

Private equity and venture capital are major contributors to our region’s economic development and play a key role in keeping our businesses open while we continue to navigate the pandemic, the lack of available human capital and increasing inflation. Raising taxes on the investors who are giving our small businesses the help they so desperately need would only limit the amount of funding they can provide.

We need legislation that supports our veterans and businesses. Now is not the time to raise taxes on investors who are helping our communities and providing entrepreneurs with funding needed to remain in business despite economic uncertainty. I urge Senators Hassan and Shaheen, as well as Representatives Kuster and Pappas, to protect carried interest and advance legislation that invests in our community and provides jobs for our veterans.

Carl Amos Johnson, a longtime fiduciary in Peterborough, is owner of Grove Street Fiduciary LLC. He was an active-duty naval officer for 10 years and still serves in the Naval Reserves for a combined military service of over 25 years.