Don’t bet on carry tax reform, says Sommers

What is said on the US presidential campaign trail often stays on the campaign trail, says American Investment Council chief executive Mike Sommers.

In the run up to the US presidential election, candidates, such as Hilary Clinton, have been vowing to close the so-called carry tax loophole. However, what is promised on the campaign trail is often not what is implemented, Mike Sommers, chief executive of the American Investment Council told Private Equity International sister title pfm.

“From my previous 20 year career in politics, I can say it is almost a certainty that what is said on the campaign trail – whether it relates to tax reform or regulations – is not the end product that we will see with a new administration, regardless of who wins.”

Sommers, who worked as the chief of staff to former speaker of the US House of Representatives John Boehner before joining the American Investment Council in February, then called the Private Equity Growth Capital Council, said that the trade association has been working with both leading campaigns to educate their policy teams on private equity and the value it provides.

In the US, carried interest is taxed at a 20 percent capital gains rate rather than as ordinary income, which carries a rate of up to 39.6 percent.

Nearly every contender in the race for the White House has spoken out against carry’s current tax status and all three remaining candidates — Bernie Sanders, Hillary Clinton and Donald Trump — have called for eliminating it. Democratic candidate Hillary Clinton has – in both her current and previous bids for the White House – referred to carry’s tax designation as an offensive loophole unfairly benefitting the nation’s wealthiest citizens.

However, whether the winning candidate can get reform through congress is another question, Matthew Saronson, a partner in the tax department at the law firm Debevoise & Plimpton previously told pfm.

“For now, people are just sitting tight; there does seem to be a substantial risk that it will be switched to being taxed as ordinary income rather than looking through to the underlying income.” But “the Obama administration has not managed to do so in eight years of trying”.