Posts Tagged tax

Grow Private Sector, Not Government


Tax policy received scant attention in the presidential debates, but when it did both candidates displayed a serious lack of understanding regarding at least one critical component of the tax code: carried interest. Although arcane in nature and unheard of by most, carried interest is a tax rule that fosters capital formation, encourages investment and ultimately leads to job creation.

Simply put, carried interest is a type of capital gain.  Homeowners are familiar with the term ‘capital gain’ which in that circumstance refers to the increase in value of your home over time as you make improvements or rising market prices increase its sale price.  If you sell your principle residence and make more than $500,000 in profit as a married couple, you must pay a capital gains tax.  You pay the capital gains tax rate, not the ordinary income tax rate, on the transaction because you have already paid taxes on the income used to purchase the house.

Likewise carried interest is a long-term capital gain that is earned by an investment partnership.  In this case the asset is not a house, but an investment portfolio that the partnership established and grew over time. When sold, the portfolio manager pays a lower capital gains tax rate on the fund’s profit, not the higher ordinary income tax rate.

The presidential candidates have, unfortunately, decided to portray carried interest capital gains as a loophole granted to special interests.  Both candidates want to raise this capital gains rate claiming it gives investment fund managers an unfair tax break.  Fairness, however, is not what such an increase would achieve. Rather it would amount to double taxation.

The negative effects would be much worse than over-taxing a sub-set of taxpayers.  The partnerships that are formed when an investor joins with a fund manager results in a structure that fosters informed investments that grow over time.  This growth generates profits.  When the profits are re-invested that is called capital.  Such capital is invested in businesses so that they can grow, expand and create jobs.

Carried interest capital gain rules play a critical role in allowing capital to form.  If you raise the carried interest capital gain tax rate, the government will take more in taxes–dramatically decreasing the amount of capital available for investment in the economy.

A significant portion of that capital available for investment is invested right here in Pennsylvania.  According to the American Investment Council, private equity firms invested an estimated $24.49 billion in Pennsylvania-based companies in 2015.  There are 143 private equity firms headquartered in Pennsylvania.  These companies support more than 185,103 workers at facilities both in Pennsylvania and in other states.

In other words, carried interest capital gains is not a tax device aimed at making Wall Street fund managers richer. Rather, it is appropriate taxation that makes more capital available for investment in the companies that are creating much needed new jobs for Pennsylvanians and elsewhere.

It is common in an election year for candidates to propose new government spending programs in an effort to win votes.  They then go looking for ways to pay for that higher spending. “Reforming” the nation’s complex tax structure is often an effective target.

But, changes can have unintended consequences.  Raising the current 23.8% carried interest rate to 33% as proposed by Donald Trump or almost 50% as suggested by Hillary Clinton would result in only a modest increase in tax revenue flowing into the federal treasury.  And we all know that any move to raise this rate would likely be coupled with other tax hikes on working families and small businesses.

Even if you set aside the unfairness of double taxing investors, raising the carried interest tax rate or eliminating that category of capital gain entirely would have the detrimental effect of reducing capital formation.  That means dramatically fewer dollars available for companies to grow and create new jobs.  Carried interest is not a tax break for the wealthy; rather it is a way for investors to put their earnings to work creating the new jobs needed as the nation struggles to recover from the Great Recession.

Lowman S. Henry is Chairman and CEO of the Lincoln Institute of Public Opinion Research, Inc. and host of the weekly Lincoln Radio Journal. His e-mail address is

Permission to reprint is granted provided author and affiliation are cited.


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Stagnation: PA business climate remains sluggish

Pennsylvania’s business climate remains sluggish as the commonwealth continues to struggle in the aftermath of the Great Recession.  Business conditions, employment levels and sales have all backslid over the past six months with owners blaming high taxes, government regulation and a lack of skilled workers for the malaise.

The Fall 2016 Keystone Business Climate Survey conducted by the Lincoln Institute of Public Opinion Research found half of the business owners and chief executive officers survey saying the state’s economy has gotten worse over the past six months, only five percent felt Pennsylvania’s business climate had improved during that time frame.

Comparatively, one year ago 42% felt the business climate had gotten worse, while six percent at that time said it had improved.  There is little optimism that business conditions will improve soon. Forty-four percent say they expect the state’s economy to continue getting worse over the upcoming six months, five percent expect to see an improvement in the business climate.

Along with that pessimistic overall prognosis twice as many businesses report having reduced their workforce as say they have added jobs.  The majority of businesses – 66% – reported that employment levels remained about the same over the past six months.  But, 21% said they have reduced their employee compliment while 11% added employees.  The picture improves slightly as the owners/CEOs look ahead to the coming six months.  Sixteen percent say they plan to add employees, 12% expect to reduce their workforce.

Sales have also taken a hit over the past six months.  Thirty-nine percent said their sales remained about the same from March thru September.  But, 39% reported decreased sales and were off-set by only 21% having reported sales increases.  Looking forward, 51% expect sales to remain stable.  Twenty-Four percent forecast an increase in sales, 23% are braced for a sales decrease.

Factors Impacting Business Growth

Among the factors cited by businesses for why they considered expanding their businesses over the past two years, but decided against expansion taxes and regulation topped the list of barriers.  Onerous federal regulations were cited by 41% of the businesses that considered, but rejected, expansion plans.  Coming in a close second was Governor Tom Wolf’s proposed tax increases cited by 40% as a reason why they did not expand. Pennsylvania’s tax structure was listed by 29% as having frustrated expansion plans.

Thirty-six percent cited onerous state regulations as a barrier to expansion, while another 35% cited the lack of a skilled work force.  Nearly half of the businesses surveyed said they currently have open positions for which they have been unable to find qualified applicants. Forty-two percent say they have been unable to fill one to five jobs; 2% have six to ten open positions; one percent has more than ten jobs unfilled due to lack of qualified applicants.

State Issues

Pennsylvania fiscal condition continues to be of concern to the business owners and CEOs participating in the Fall 2016 Keystone Business Climate Survey.  Eighty-five percent disagreed – 70% strongly so – with Republicans in the General Assembly having agreed to a $1.4 billion spending increase and then raising taxes to enact the current year’s state budget.

Looking ahead to what will likely be another epic budget battle next summer, 92% say the General Assembly must address cost drivers such as pension reform before considering an increase in taxes.  In fact, 34% said the state’s massive unfunded pension liability has caused them to not consider expanding in Pennsylvania.

Among pension reforms being considered is moving state employees from the current defined benefit pension system to a defined contribution plan. Thirty-nine percent of the businesses surveyed said they offer employees a company administered defined contribution plan to which the company contributes.  Only 3% of the private businesses surveyed continue to offer a defined pension plan.  Another 40% offer employees no retirement plans at all.

Earlier this year the General Assembly did pass, and Governor Tom Wolf signed into law, some modest changes to the state’s century-old liquor laws. Business owners/CEOs said those reforms did not go far enough.  Fifty-two percent would like for the state to completely privatize both retail sales and wholesale distribution of alcoholic products.  Another 26% would like to see just retail sales privatized.  Twelve percent said the recent changes were sufficient.

Pennsylvania has an abundant supply of natural gas, but additional pipelines are needed to get that gas to market.  Eight-nine percent agree – 60% strongly agree – that this resource should be developed and more pipelines built.  Nine percent disagree.  Twenty-five percent said easier access to natural gas would be a benefit to their business with an additional 14% saying it would be a major benefit.  Thirty percent said they do not utilize natural gas in their business.

Over the past nine years since the passage of Act 44 the Pennsylvania Turnpike Commission has diverted $5.2 billion to PennDOT to help pay for state highways and public transit.  This has resulted in annual fare increases for turnpike travelers.  Sixty-three percent of those participating in the Fall 2016 Keystone Business Climate Survey said this should end and fare revenue be used only to maintain and improve the turnpike.  Twenty-nine percent felt the sharing of revenue should continue.

Job Approval Ratings

President Barack Obama and Governor Tom Wolf continue to suffer from significantly low job approval ratings among the business community.  Eighty-four percent have a negative view of the President’s job performance; 86% disapprove of the job being done by Governor Wolf.

U.S. Senator Pat Toomey, who faces re-election in November, received a 50% job approval rating against 23% with a negative view of his job performance.  The job being done by U.S. Senator Robert P. Casey, Jr. is viewed negatively by 56% of the business owners/CEOs, 18% give him positive marks.  Likewise, 54% say Federal Reserve Chair Janet Yellen is doing a poor job, 15% approve.

Pennsylvania has three statewide constitutional or “row” offices. Two are serving by appointment, their elected predecessors having resigned after being convicted of crimes.  Auditor General Eugene DePasquale is the surviving official elected in 2012 still in office.  Seventy-three percent have no opinion of his job performance, with 14% saying he is doing a good job and 14% having a negative opinion of his job performance.  Likewise about two-thirds offered no opinions on state Treasurer Tim Reese or Attorney General Bruce Beemer.  Of those who did, 18% give Beemer a negative rating, 6% a positive one while 15% hold a negative view of Reese, 5% a positive view.

As has been the case throughout the Keystone Business Climate Survey’s 22-year history the owners and chief executive officers hold the federal congress and the state legislature in very low regard.  Just 8% approve of the job being done by the United States Senate, 11% approve of the job being done by the U.S. House of Representatives.  Seventeen percent approve of the job performance of the Pennsylvania Senate; 19% approve of the job being done by the Pennsylvania House of Representatives.

Finally, the Lincoln Institute asked participants in the survey who they support for President of the United States and United State Senator from Pennsylvania in the upcoming November General Election.  Seventy-three percent said they will vote for the Republican nominee Donald Trump, 12% support the Democratic nominee Hillary Clinton and 6% say they will vote for Libertarian Gary Johnson.   Republican incumbent U.S. Senator Pat Toomey has the support of 81% of the owners/CEOs, Democratic challenger Katie McGinty has 12% support.


The Fall 2016 Keystone Business Climate Survey was conducted electronically by the Lincoln Institute of Public Opinion Research, Inc. from September 13 through October 5, 2016.  A total of 370 businesses responded to the survey invitation.  Of those 81% are the owner of the business, 14% are the CEO/COO/CFO and one percent a business manager.

Twenty-five percent of the responses came from the Philadelphia/southeastern part of the state; 18% from Pittsburgh/southwestern Pennsylvania; 16% from south/central Pennsylvania; 13% from northwestern Pennsylvania; 11% from northeastern Pennsylvania; 10% from north-central Pennsylvania; 4% from the Lehigh Valley and 3% from the Altoona/Johnstown area.

Complete numeric results are posted on-line at

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This Week on Lincoln Radio Journal: State Spending During Budget Impasse

Radio Program Schedule for the week of December 12, 2015 – December 18, 2015

This week on Lincoln Radio Journal:

  • Eric Boehm has news headlines from
  • Lowman Henry has a Newsmaker interview with State Representative Chris Dush co-author of a Report on State Spending During the Budget Impasse
  • Eric Montarti and Frank Gamrat have an Allegheny Institute Report on demise of the proposed severance tax on Marcellus shale drillers
  • Beth Anne Mumford has a guide to dealing with that progressive who comes home for the holidays

This week on American Radio Journal:

  • Lowman Henry talks with Veronique de Rugy from the Mercatus Center at George Mason University about abolishing the U.S. Department of Agriculture
  • Doug Sachtleben of the Club for Growth has the Real Story on the federal budget stalemate
  • Eric Boehm and Matt Kittle have a Watchdog Radio Report on a Wisconsin prosecutor run afoul of campaign finance laws
  • Colin Hanna of Let Freedom Ring, USA has an American Radio Journal commentary on President Obama’s ISIS speech

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

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This Week on Lincoln Radio Journal: Wolf Loses Big

Radio Program Schedule for the week of October 10, 2015 – October 16, 2015

This week on Lincoln Radio Journal:

  • Eric Boehm has news headlines from
  • Kevin Shivers from the National Federation of Independent Business-PA and Matthew Brouillette of the Commonwealth Foundation are joined by State Representative Jim Christiana (R-Beaver) for a Capitol Watch look at House rejection of Governor Wolf’s tax plan
  • Lowman Henry has a Town Hall Commentary on ending corporate welfare

This week on American Radio Journal:

  • Lowman Henry talks with former U.S. Navy Seal Chris Heben about Russian aggression in Syria
  • Andy Roth of the Club for Growth has the Real Story on chaos in the race for U.S. House Speaker
  • Eric Boehm talks with Arif Panju of the Institute for Justice about a food truck controversy in San Antonio on this week’s Watchdog Radio Report
  • Colin Hanna of Let Freedom Ring, USA has an American Radio Journal commentary on Carly Fiorina and those Planned Parenthood videos

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

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This Week on Lincoln Radio Journal: Jim Broussard Talks Tax Reform

Radio Program Schedule for the week of May 30, 2015 – June 5, 2015

This week on Lincoln Radio Journal:

  • Eric Boehm has news headlines from
  • Lowman Henry talks with Dr. James Broussard of Citizens Against Higher Taxes about the history and prospects for property tax reform
  • Eric Montarti and Frank Gamrat have an Allegheny Institute Report on revised job numbers
  • Beth Anne Mumford of Americans for Prosperity-PA has a Lincoln Radio Journal commentary on the state senate’s positive first step toward pension reform

This week on American Radio Journal:

  • Lowman Henry talks with American Sniper author Scott McEwen about the success of the film and about his new book The Sniper and the Wolf
  • Andy Roth of the Club for Growth has the Real Story on the latest maneuvering over Trade Promotion Authority for the Trans Pacific Partnership
  • Eric Boehm talks with Washington State Representative David Taylor for a Watchdog Radio Report on limits to the use of stingray technology
  • Col. Frank Ryan, USMC (Ret.) has an American Radio Journal commentary on negative interest rates in a deflationary economy

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

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Jedis, DREAMers and Tax Schemers

It could be labeled a Jedi mind trick, or perhaps double speak worthy of a George Orwell novel.  President Obama and the Left have raised to an art form the ability to name a policy initiative the exact opposite of what it actually is, thus making opponents look bad for opposing it.

The “Affordable” Health Care Act which has resulted in higher health care costs; and the proposed “DREAM” Act that supposedly would solve the nation’s immigration crisis, but actually would simply grant amnesty to lawbreakers are but two examples. In recent weeks the president and his minions have been touting “economic patriotism.”

Setting aside the obvious irony of the Obama Administration posing as patriotic, it is safe to assume most Americans would not want to be viewed as unpatriotic.  On the face of it “economic patriotism” would sound like the latest version of a “buy American” campaign, or a push to patronize your local small business.  In actuality it is part of the administration’s effort to demonize corporations for trying to lower their tax burden and maximize profits.

Taken a step further, as individuals we would be viewed as economically unpatriotic if we took our home mortgage deduction, child tax credit or charitable giving deduction because we are depriving the federal treasury of the funds it needs to finance the President’s big government agenda.  So, stop waving that flag and start finding ways to maximize the amount of money you fork over to the IRS every April.

What has set the president’s patriotic heart aflutter is the growing trend of large U.S.-based corporations merging with partners overseas and locating their corporate headquarters in nations with more favorable corporate tax rates, a practice known as corporate inversion.  This is totally legal and what would be expected in a free market system.  But the president has determined that legal or not, it is – in his opinion – wrong.  And, he having a pen and a phone is the final arbiter of all things legal and moral.

Treasury Secretary Jacob Lew got the debate started by asking congress to outlaw corporate inversion.  In highly inflammatory language he proclaimed corporations “seek to shift their profits overseas to avoid paying their share of taxes while benefiting from the United States without paying a dime.”

That, of course, is absurd.  Both foreign and domestic corporations are subject to the U.S. corporate income tax.  The problem is the United States sports a 35% corporate tax rate, the highest rate among the world’s 34 most industrialized nations. And this gets to the heart of the matter.  Scott Eastman of the Tax Foundation explains: “The U.S. is one of only six developed nations with a ‘worldwide’ tax system that subjects its domestic corporations to double taxation. Income earned by American corporations abroad is taxed once by the nation in which it was earned, and again when the income is back within our borders.”

It is both the structure of American tax policy and the excessively high tax rate that makes it attractive for corporations to headquarter elsewhere.  Consider that Japan is in the process of lowering its corporate tax rate to 25%.  Thus, an American corporation that executes an inversion with a Japanese partner will immediately realize a 10% decrease in its tax obligation simply by virtue of that move alone.

Rather than demonizing American companies that are simply reacting to the nation’s oppressive corporate tax policies the Obama Administration should be working with congress on reforming the system.  Republicans in the U.S. House of Representatives have been pushing for such comprehensive reform, but as with virtually all GOP initiatives it has been met with a stone wall of opposition from the White House.

In the meantime, recovery from the Great Recession continues to lag as it will until and unless the underlying disincentives for business investment and growth contained within U.S. tax policy are changed.  And no amount of name calling by the president and the treasury secretary will change that fact.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is


Permission to reprint is granted provided author and affiliation are cited.

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This Week on Lincoln Radio Journal: Kyle Pomerleau Talks Tax Burden

Radio Program Schedule for the week of July 26, 2014 – August 1, 2014

This week on Lincoln Radio Journal:

  • Lowman Henry talks with Kyle Pomerleau of the Tax Foundation about the tax burden of U.S. workers
  • Eric Montarti and Josh Eberlyexamine the impact of a recent court ruling on municipal employee residency requirement on the Allegheny Institute Report
  • Anna McCauslin of Americans for Prosperity-PA has a Lincoln Radio Journal commentary on how the state got into the current pension crisis

This week on American Radio Journal:

  • Lowman Henry talks with Kyle Pomerleau of the Tax Foundation about the tax burden of U.S. workers
  • Andy Roth of the Club for Growth has the Real Story behind the growing controversy over “economic patriotism”
  • Eric Boehm and Chris Butler have a Watchdog Radio Report on a small peach farmer in Alabama being forced out of business by the Environmental Protection Agency
  • Colin Hanna of Let Freedom Ring, USA has an American Radio Journal commentary on how the current scandals could hasten the abolition of the IRS

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

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