President George W. Bush said this week he will use veto power to keep taxes low and made several allusions to the economic benefits of venture capital, as the controversy over carried interest and publicly traded partnership taxation continues to sweep Washington, DC.
“Our economy is growing in large part because America has the most ambitious, educated and innovative people in the world – men and women who take risks, try out new ideas, and have the skills and courage to turn their dreams into new technologies and new businesses,” Bush said today. “To stay competitive in the global economy, we must continue to lead the world in human talent and creativity.”
Yesterday Bush made similar remarks, using the venture capital-backed eBay and “the college student who starts up a business in a parent’s garage” as examples of entrepreneurial success driving the US’ free market economy.
Increasing taxes would hamper that, he said.
“I recognize the Democrats control the Congress, and with it, the power of the purse,” Bush said. “I also have some power, and it’s called the veto.”
Responding Thursday to a reporter’s question regarding carried interest taxation, Bush said his administration does not support targeting certain types of limited partnerships.
“Partnerships are an important vehicle to encourage investment and capital flows,” he said. “We’re very, very hesitant about trying to target one aspect of limited partnerships for fear of the spillover it’ll have in affecting small business growth. And we don’t support that.”
The remarks come as a flurry of activity on Capitol Hill threatens to raise taxes on publicly traded partnerships like The Blackstone Group and Fortress Investment Group, as well as raise taxes on the carried interest collected by private equity and venture capitalists.
Senator Chuck Grassley, a Republican from Iowa, said this week that he will link the publicly traded partnership bill he co-authored with Senate Finance Committee chairman, Montana Democrat Max Baucus, to an attempt to fix the Alternative Minimum Tax Act. The AMT was enacted in the late ’60s and meant to tax a couple hundred wealthy families, but because it is not indexed for inflation it now affects millions of Americans; this year, it will affect 23.4 million individuals, according to Washington think tank The Tax Policy Center.
“The president proposed an AMT patch for 2007 that is fully accommodated in his budget – without tax increases,” White House spokesman Tony Fratto said, Bloomberg reported.
Charles Rangel, a Democrat from New York and chairman of the House Ways and Means Committee, reportedly said last week he plans to link the AMT to the carried interest bill introduced by Representative Sander Levin, a Democrat from Michigan. Levin’s bill proposes that carry be treated as ordinary income taxed at as high as 35 percent, rather than as capital gains and taxed at 15 percent.
Senator Charles Schumer, a Democrat from New York on the Senate Finance Committee, has spoken out against the Grassley-Baucus bill, but Wednesday endorsed the carried interest bill, according to a Washington Post editorial that also endorsed the tax increase. Schumer may introduce a similar bill in the Senate, the paper said.
Congressional committees such as Senate Finance and House Financial Services have already held hearings on private equity-related matters, and House Ways and Means is scheduled to do so later this month.