The Fallacious Objections to the Tax Treatment of Carried Interest

Abstract

The tax treatment of carried interest has become a notorious bete noire for many politicians and some academicians and practitioners. Both 2016 presidential candidates denounced the current tax treatment and vowed to change it. President Obama described the current treatment as a “tax loophole” which should be closed. Others have also characterized the current tax treatment as an abusive loophole. It is the thesis of this article that those criticisms are unfounded. To the contrary, the current tax treatment accords with sound tax policy and is proper and appropriate. Given the broad approval that attended the attacks on carried interest, a reader might well be skeptical of our claim; but if you will bear with us, we are convinced that we can sustain it.