Washington, Sep 11, 2007 -  

On Capitol Hill, the talk this past week has been about making the tax code more fair and helping working families. You know I work to keep our taxes low because working families, like you, know how to better spend your hard-earned money than the government. I’ve been paying particular attention to tax increases, especially to a proposal by Ways and Means Chairman Charlie Rangel (D-NY) and Congressman Sander Levin (D-MI) that was discussed during a recent Ways and Means hearing.

Their proposal would more than double the tax on carried interest from investments, raising it from 15 percent to 35 percent. You’ll likely hear on the news and read in the papers that this would affect mostly fat cat Wall Street investors. You’ll hear about managers of hedge funds and private equity investments being affected. You’ll likely hear about those firms and their multi-billion dollar buyouts of companies like Neiman-Marcus and Nabisco. It may even seem fair that those managers who make a salary greater than most of us could imagine, pay more in taxes on their profits. But, as I listened to witnesses at the committee hearing, it became very evident that this proposal wouldn’t just affect the heavy-hitters on Wall Street, it would affect everyday workers on Main Street, too.

This proposal and its effects could have a measurable impact that goes far beyond wealthy investment managers. It could affect those who participate in the State Employees Retirement System. How? Many state retirement funds use investment tools like hedge funds to help guarantee returns for their retirees. There is disagreement on whether retirement systems would stop investing in hedge funds or if the new taxes could change the rate of return on investments. But that hasn’t stopped some retirees from expressing worry to me about the security of their retirement account.

In addition, real estate partnerships and real estate investors could be hit by the proposed carried interest tax increase. Those real estate investors are what drive revitalization and community investment, create jobs, and drive the economy. Investors might be less likely to take risks and entire neighborhoods might lose out.

Innovators may also lose out by this proposal. Venture capitalists help fund research at places like The Ohio State University Medical Center and at Battelle. With the proposed increase in taxes, countries like India and Japan might take the lead in medical developments and technological achievements – that’s where investors might turn instead of the heartland. We need to remain a world leader in research, development, and investment.

The carried interest tax proposal is complicated. It could have wide-ranging effects, not just to the people in air-conditioned, steel and metal sky-scrapers, but to a hard-working mom, looking forward to her retirement, to the little boy who hopes one day his neighborhood will be safe enough for his parents to let him ride his bike to the playground, or to the researcher who may be on the verge of discovering a new cancer treatment. It’s a proposal that must thoroughly be examined as a whole and its benefits and detriments weighed to determine if this is the best way to improve our nation’s tax policy.