Back to the carried interest panel in D.C. last Friday. An interesting starting point for me was the suggestion, made by a good friend there who I only see sporadically, that I am thought to be "walking the line" on this issue. I may not have the phrase right, but the sense of it, I thought, was that I'm perceived as trying to be in the middle. This, I presume, because I have been interested in the question of whether the corporate-level tax gives some merit to the anti-change position on this issue. To my mind as an academic, it's actually the most interesting part of the entire issue in terms of the light it sheds on thinking about tax reform, the taxation of "capital income," etcetera. But probably not very important to thinking concretely about the merits of the carried interest issue as it has been teed up for current consideration in Washington - this by reason of the gaps in the corporate tax base, which make the proxy tax less of a relevant concept.
I do admit I want to be reasonable not shrill on the issue, which (though it sounds good) can actually take one away from calling things accurately when one side is totally wrong. (Cf. "bipartisanship" on Iraq or almost any other current policy debate featuring the Bush Administration on one side.)
So far as making the proposed legal change is concerned - that is, requiring ordinary income treatment for some well-defined category of general partner carried interests - I think the merits in favor really are pretty overwhelming. This was quite clear at the panel, where Jonathan Talisman really didn't seem to me to have that much he could say in support of his stand. (To his credit, he was reasonable & tried to be fair-minded given his position.) All he could really say is that it's a line-drawing problem, lots of other people with labor income get capital gains treatment anyway, so why not let these guys keep it as well. No good answer to: Why not move the lines a bit, even if marginally and arbitrarily, in the right direction.