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AIC Statement on Carried Interest Capital Gains Legislation

WASHINGTON, DC – American Investment Council President and CEO Drew Maloney released the following statement regarding carried interest capital gains legislation introduced by Senator Tammy Baldwin (D-WI), and H.R. 1068, which was recently released by Representative Bill Pascrell (D-NJ):

“The 2017 tax law made sure that investors only realize long-term capital gains carried interest after investing in a company for over three years. As workers and local economies continue to struggle during this pandemic, Washington should not punish long term investment that creates jobs, builds businesses in communities, and develops more renewable energy across America.”

Background on the Private Equity Industry and Carried Interest:
 
Private equity is an important driver of economic growth in the US with firms investing hundreds of billions of dollars into the U.S. economy each year. However, there are a lot of misconceptions about the industry. To learn more, please check out this short whiteboard video about a commonly misunderstood aspect of private equity: carried interest.

Private equity firms work to improve operations, governance, and competitiveness of businesses by hiring managerial talent, advancing technology, and expanding distribution channels. Typically, after four – seven years, private equity sells the company or lists it for initial public offering (IPO).

The private equity industry supports millions of jobs and strengthens retirements across America. For example:

  • Wisconsin: The private equity industry directly employs 181,000 workers in Wisconsin. The State of Wisconsin Investment Board enjoyed a one-year return of 10% on its private equity investments.
  • New Jersey: The private equity industry directly employs 239,000 workers in New Jersey. The New Jersey Division of Investments has enjoyed a 12.6% return from private equity over a ten-year period.
  • California: The private equity industry directly employs over 1.1 million workers in California. The California Public Employees Retirement System has enjoyed a 10.4% return from private equity over a ten-year period.
  • Michigan: The private equity industry directly employs over 242,000 workers in Michigan. The Michigan State Employees Retirement System has enjoyed a 14.3% return from private equity over a ten-year period.
  • West Virginia: The private equity industry directly employs over 46,000 workers in West Virginia. The West Virginia Investment Management Board has invested $2.2 billion in private equity. Over the past ten years, the Investment Management Board’s private equity allocation has seen a return of 16.06%.

Both bill’s negative impact on long-term investment is also not limited to private equity or venture capital. In 2019, 14 national organizations representing a broad spectrum of America’s real estate urged Congress to reject similar legislation which, “would result in a huge tax increase on countless Americans who use partnerships in businesses of all types and sizes.”