Commercial Real Estate Direct Staff Report
Commercial real estate associations and trade groups are warning the U.S. Congress that a proposal to increase the tax on the carried interests of investment partnerships would dampen investment activity and stifle the already slow economic recovery and hopes of job growth.
"Simply put, increasing the tax on carried interest will hurt entrepreneurship, investment in communities and job creation in commercial real estate at a time when the economy is still struggling under the weight of a 9.1 percent unemployment rate," the 18 groups say in a letter to the co-chairpersons of the federal deficit reduction committees of the U.S. Senate and the House of Representatives.
The groups, which include the CRE Finance Council and the Real Estate Roundtable, added that proponents of the proposed tax increase have incorrectly "spun" the current tax treatment of partnerships as a tax loophole.
The proposed hike, which is part of a jobs bill that President Barack Obama has submitted to Congress, would increase the tax on carried interests to the same rate as that on ordinary income from its current capital-gains rate. The regular income tax rate tops out at 35 percent, while the capital-gains tax rate for long-term investments is 15 percent.
Characterizing the existing treatment of carried interest as a loophole, "couldn't be further from the truth," according to the trade groups. "Carried interest (or promote) has been used as an investment model in commercial real estate for several decades. It is the way to reward the general partner in a real estate business venture for taking on the countless risks and liabilities associated with long-term real estate projects."
Increasing the tax rate "would discourage risk taking and the type of investment in real estate that we now need across the country," the groups further appealed in their letter to the committee co-chairpersons, U.S. Sen. Patty Murray (D-Wash.) and Rep. Jeb Hensarling (R-Texas.)
The jobs bill was defeated in a Senate vote, but Democrats in that body have vowed to re-introduce parts of the bill to have them approved as law piece by piece, according to news reports from Washington, D.C.
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