A recently introduced piece of legislation in the state of New York would upend decades of tax law by deciding after-tax investment capital gains income should be taxed as ordinary income.
The legislation would takes aim at “carried interest,” a type of capital gain, by redefining it as business income, instead of investment income.
This makes no sense, because there is zero difference between carried interest and any other type of capital gain.
A capital gain is income from an individual investing in a business or real estate over the long term. It is a core part of any long-term investment partnership, which is where individuals with capital and individuals with expertise pool their resources together.
Individuals that derive income from carried interest pay the same capital gains taxes rates as everyone else, as they should.
It is indistinguishable from any other type of capital gain, despite what some New York legislators want to pretend.