A new study conducted by the Private Equity Council, finds that a proposal to raise the tax on carried interest could cut American private equity investments by USD 7 billion to USD 27 billion.

The study has tracked the correlation between tax rates and private equity investments during the past 30 years. In this time period, there have been enacted sizeable changes to the effective tax rate on private equity on three occasions: 1986, 1997 and 2003. In each of these years, the jump in the tax rate has reduced the growth of private equity investment.

The tax proposal would increase the tax rate by 14.7 percentage points, from 23.8 percent to 38.5 percent. The Private Equity Council estimates that the increase would result in an annual investment reduction of at least USD 7 billion. The effect on employment is uncertain, but the Private Equity Council estimates a decrease in employment of between 37 000 and 128 000 people.

The findings of the American study may be compared to recent calculations from the Danish Venture Capital Association (DVCA). Last year, DVCA conducted a study among Danish Business Angels Investors. One of the findings was that the increase in Danish portfolio taxation, would reduce venture capital investments in Denmark with between DKK 4.4 billion and DKK 14.5 billion.

Read the Private Equity Council Study

Read the DVCA Statement