Part 4/7:
The American Investment Council, representing the private equity industry, staunchly defends the carried interest tax policy, outlining that it promotes job creation, supports small businesses, and fosters local communities. Their assertion hinges on the belief that private equity executives invest "sweat equity," where risk-taking with investor capital leads to higher returns and economic stimulation.
However, the argument hinges on a flawed premise. Critics emphasize that the executives' incentive structure does not genuinely affect how investment capital is deployed, since the actual capital belongs to limited partners, not the fund managers themselves. Consequently, the justification for different tax treatment often appears disingenuous.