The Private Equity Growth Council Defends Carried Interest
Steve Judge, the President of the Private Equity Growth Council, wrote a defense of the capital gains tax treatment of carried interest for Deal Book (“Why Carried Interest Is Capital Gain”).  that isn’t too convincing. According to his argument, we ought to believe that private equity executives are entrepreneurs. In reality they are investment bankers, who have learned that it is much more lucrative to form funds than to advise clients. The folks who really know how to run companies, and who bring true “sweat equity” into a partnership should be insulted.
Moreover, the people who are allocated points that comprise carried interest in a private equity fund are very often not the ones working intimately on the deals. Rather the points go to the most senior folks, who jet all over the world to raise new funds, speak at conferences, and meet with politicians. In some cases the points even go to retired executives.
The fact that the amount of tax revenue is relatively small in relation to the needs of the federal government is a terrible argument. There are tons of tax benefits that don't contribute much to the overall running of the government, and each of those taxpayers could make the same argument. Taken together, those tax benefits add up.
What's really at issue is that a tiny group of people gets outlandishly large tax breaks, using their investors’ capital instead of their own. In fact they have so much money, they can employ people like Mr. Judge to lobby on their behalf.