Sam Zell: Why fund managers need low taxes

Sam Zell on 'carried interest' tax rates

Money managers and real estate professionals need the tax rule that gives real estate and private equity funds a low tax rate, real estate billionaire Sam Zell told CNBC on Tuesday.

He said "carried interest" rules help maintain healthy profits and encourage long-term investments.

Critics call carried interest a loophole that exacerbates wealth inequality by allowing hedge fund and private equity managers to earn seven-figure salaries. The tax code treats that type of income as long-term capital gains and taxes it at 20 percent, versus 39.6 percent on the highest income bracket.

Closing the carried interest loophole is part of President Barack Obama's current budget proposal and is in a tax code overhaul drafted by Rep, David Camp, R-Mich., last month.

Sam Zell
Adam Jeffery | CNBC

During an interview on CNBC's "Squawk Box," Zell said revamping carried interest rules would take a chunk out of his profits.

"The net bottom line would be dramatically different," said Zell, the chairman of Equity Group Investments. "Give or take half. You wouldn't make the same type of profitability."

Read MoreCNBC Explains: Carried Interest

Zell told CNBC that raising money or managing long-term investments, whether in real estate or private equity funds, was similar to "building a foundation for a house." Zell said he holds real estate funds and investments for eight to 10 years, making them "very significant" long-term bets.

"I'm putting up capital," Zell said. "Why shouldn't I be treated as a long-term investor if I've owned the asset for eight years?"

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And money managers? Zell said they make a long-term commitment when they become responsible for investors' money.

"There are lots of ways to change the standards, but the basic premise is we want to encourage people to make long-term investments," Zell said.

Rubenstein: Tax everyone the same

Earlier this month on "Squawk Box," private equity billionaire David Rubenstein addressed Camp's proposed tax overhaul, which targets private equity funds. He said all the industries that benefit from the carried interest rules should receive a closer look under any type of proposed tax reform. Camp's plan has fallen out of favor with the Republican leadership.

"Let's have a comprehensive look at everything," Rubenstein said. "I also think you should realize that 50 percent of all the carried interest taxation is actually paid by the real estate industry. Everybody should be treated equally."

Carried interest also came under scrutiny during the 2012 presidential election when GOP candidate Mitt Romney released his tax records, which showed capital gains playing a big role in his high net worth.

—By CNBC's Jeff Morganteen. Reuters contributed to this story.