The Building Owners and Managers Association (BOMA) Intl. strongly opposes a proposal by House Ways and Means Chairman Charlie Rangel to change the tax treatment of "carried interest" - the portion of the profits a general partner receives in a partnership - from a capital gain to ordinary income, and thereby increasing the tax rate from 15 percent to 35 percent as part of the Alternative Minimum Tax (AMT) bill.
The characterization that this plan is an attempt by Congress to simply close a tax "loophole" in an effort to increase the taxes on only a few well-off "hedge fund" managers in the spirit of tax fairness is oversimplified and inaccurate. In reality, the bill will have far-reaching and damaging consequences on commercial real estate entrepreneurship and American business. Requiring that all returns from carried interests be taxed at ordinary income rates, no matter the nature of the investment or the investment period, will disrupt the investment relationship between entrepreneurs and their capital finance partners.
"Increasing the tax rate on carried interest would have negative consequences on commercial real estate investment, as well as on the countless American business men and women that rely on business tax incentives to develop properties, create jobs, and, ultimately, strengthen the economy," says BOMA Intl. chairman and chief elected officer Brenna S. Walraven. "The significance of this change will be felt most noticeably on ‘Main Street' and in underserved cities and neighborhoods that require developers to take up front risks in exchange for future profits in tough economic areas. In short, this huge tax increase would have profound unintended consequences to the 1.5 million workers directly employed by the real estate industry and the nation's 800,000 construction workers."
A change in the tax code requiring carried interest be taxed as ordinary income would also more negatively impact the small real estate entrepreneurs who may not have the same negotiating leverage that larger firms have to pass on a carried interest tax increase to their investors or employ new investment structures to avoid the tax all together.
BOMA Intl. will continue to work with policy makers to educate them on the economic necessity of maintaining the current carried interest
The mission of BOMA Intl. is to enhance the human, intellectual, and physical assets of the commercial real estate industry through advocacy, education, research, standards, and information. Learn more at (www.boma.org).
