Some investment fund managers admit that there is no justification for the carried interest loophole, which allows a part of their compensation (their "carried interest") to be taxed at the low capital gains rate.
On May 18, talk show host Charlie Rose asked Jonathan Nelson, CEO of the private equity firm Providence Equity Partners, if he could "live with it" if Congress taxed his carried interest at ordinary rates instead of the low capital gains rate. Nelson responded, "We could live with it if they changed it overnight. Absolutely."
On May 29, Fred Wilson, a venture capitalist of a firm called Union Square Capital, wrote that his carried interest should be taxed as ordinary income because it's compensation for work rather than gain on an investment. "It is not fair or equitable to other recipients of fee income to give a special tax break to certain kinds of fees and not to others," he explains, before explaining other policy reasons for ending the loophole.
Bill Stanfill, founder of a Colorado-based venture capital firm called TrailHead Ventures, testified before the Ways and Means Committee in favor of closing the loophole back in 2007. He recently asked Senators in a letter (and in several meetings and phone calls), "Why should the 'bonus' (carried interest) earned by v.c.'s be taxed more favorably than the bonus of any other working person — whether teacher, salesperson, athlete or corporate manager? Life can be unfair, but it does not follow that the government should institutionalize unfairness. Instead, it should level the playing field as much as possible."
Interestingly, even two Republican Senators have indicated that they have no use for the carried interest loophole. FDL News reports that Republican Senators Olympia Snowe and Susan Collins of Maine have indicated that they have no objection to closing the loophole.