Private Equity Tax Plan Would Hamper Job Creation: GOP Congressman

Rep. Eric Cantor (R-Va.) told CNBC’s “Squawk Box” that proposals to boost the tax rate on carried interest are “nothing but a tax on innovation and job creation in America.”

“This just goes back to Economics 101,” the GOP congressman said Wednesday. “If you raise the price of something -- the price of putting your capital at risk and provide a disincentive to risk-based investment in this country -- you’re going to have less of it.”

Cantor said increasing taxes on profits earned by private equity and hedge funds would cut the returns of private retirement plans, which now rely on hefty returns generated by risk capital. He said this would erode the retirement benefits of working Americans, including teachers, firefighters as well as municipal and state employees.

The Senate Tax Committee will hold its first hearing Wednesday on taxing “carried interest,” or the profits earned by private equity and hedge funds managers. The money is typically taxed at the 15% capital-gains rate, because the law now views such profits as investment income rather than earned wages. A bill in the House would declare such profits ordinary income and tax them at rates as high as 35%. The Senate may offer a similar measure.

“The House bill, the Levin-Rangel bill, is sweeping,” Cantor said. “I think potentially any partnership in America could be affected. …I think we’re going to see over the next several months industries wake up and realize that’s what we’re talking about: a tax on innovation and a tax on job creation in America.”

He said the tax plan, led by Democrats, is an effort to overturn President George W. Bush’s capital-gains tax rate reduction -- and is part of a long fight ahead.

“I think we are just beginning to really see the tax fight of all tax fights unfold this year,” Cantor said.