Our businesses are the life blood of the Maine economy. They create stable jobs, invest in local communities, and create and sell products and services we need. Our unfair and out of control tax system with never ending requirements and tax rates that seem to go up every year makes it difficult for companies to navigate and grow.
Many businesses are able to expand and take on large projects through financial investments from partnerships, such as private equity or venture capital firms. These investments are fortified through carried interest, essentially a financial reward for investment partners on long-term, high risk investments in companies.
Why does this matter? U.S. Congressman and Chairman of the House Ways and Means Committee David Camp (R-Michigan) has proposed a so-called tax reform bill that includes provisions to raise taxes on carried interest. Carried interest, which has been considered capital gains, is taxed at the max of 23.8 percent. This rate was actually increased just a little over a year ago from 15 percent to the current rate. Congressman Camp proposes raising it even further to 35 percent!
The last thing we need are higher taxes and further government intervention. This tax hike will decrease how much money investment partnerships infuse into the economy. Fewer companies can expand or start big projects, startups will struggle to find funding, fewer new jobs will open — consumers (you and me) will take the hit.
Additionally, Congressman Camp’s proposal will no longer classify carried interest as capital gains; and if in the future, the tax on carried interest is increased again, then little will stand in Congress’ way to increase the capital gains tax. This, in effect, will impact businesses and individuals of all sizes and not just their investment partners on larger endeavors.
It’s critical that our representatives in Washington, and especially both Senator Collins and Senator King, who will both play a critical role in any tax reform debate, hopefully understand the importance and long-term effects of increasing taxes on business investments — from companies to the workforce to the consumer. Raising taxes is not the answer to tax reform. There are already enough punitive taxes that businesses and individuals must wrangle.
In a recent report, economists from the Brookings Institute offered the following regarding entrepreneurism and job creation in America:
“Research has firmly established that this dynamic process (entrepreneurism) is vital to productivity and sustained economic growth,” wrote Ian Hathaway and Robert E. Litan for Brookings. “Entrepreneurs play a critical role in this process, and in net job creation.”
“But recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued.”
The Census Bureau confirms that for the first time since they began tracking the data, more companies are closing than are being formed. The question we must ask is, “Why would our Congress make opening a business a little harder at a time when it is already hard enough to get a business off the ground?”
Let’s face a fact that most Americans understand and most politicians simply ignore. Our tax code is already too complicated and too cumbersome. It discourages many who simply do not want to chance a fight with the government by starting their own business. Reform should create greater simplicity in our tax code, not simply make it harder for those who are willing to take a risk to build a business.
Congress needs to cut spending to solve our fiscal problems — NOT raise taxes. Protect Maine companies and let’s not create any further barriers to an already struggling economic recovery by raising more taxes.
Ray Richardson is the host of the Ray Richardson show, heard weekday mornings from 6 a.m. to 9 a.m. on the flagship station 1310AM News/Talk WLOB in greater Portland and the LOB Statewide Lobster Radio Network. He can also be found at wlobradio.com and rayrichardson.net.
A version of this column originally appeared in the Portland Daily Sun.
