Does Barack Obama Support Taxation of PTPs?
July 14, 2008, updated August 29, 2008 and November 6, 2009
Update, November 6, 2008
Perhaps inevitably, one result of the outome of the recent Presidential election was a new round of rumors that President-elect Obama has proposed taxing PTPs as corporations. With the help of Association members, we were able to track down the source of this rumor: a memo circulated by an investment firm that was based on the Tax Policy Center analysis described below but like other summaries we have seen, neglected to include the all-important word "financial". The investment firm has admitted that this was an error. Therefore, it continues to be true that the only matter involving PTPs on which the President-elect has taken a public position is his cosponsorship of legislation--which has gone nowhere--to tax PTPs which are investment advisors as corporations. We have no reason to believe that he has taken any position with regard to other PTPs.
Over the past several weeks, there have been reports in various publications that Democratic Presidential nominee Barack Obama has proposed to tax PTPs as corporations. A June 27 report published by Lord Abbett entitled "Candidate Tax Proposals" listed "Tax publicly traded partnerships as 'C' corporations" among Senator Obama's positions; an August 11 Lehman Brothers "Washington Weekly stated that Senator Obama proposes to "apply corporate level of tax to PTP income"; and an August 24 editorial in the Seattle Times entitled Barack Obama's market populism states, "He proposes, for example, to make publicly traded partnerships pay corporate income tax."
We have found no evidence to date that Senator Obama has proposed taxing all PTPs as corporations. The cited source for the Lord Abbett report is an analysis by the Tax Policy Center (a joint venture of the Urban Institute and Brookings Institution) titled A Preliminary Analysis of the 2008 Presidential Candidates' Tax Plans. This report summarizes Senator Obama's position as taxing publicly traded financial partnerships as C-corporations. Only a few PTPs meet this description.
Both the Tax Policy Center and Lehman analyses are based on Senator Obama's support for and cosponsorship of S. 1624, the Baucus-Grassley bill which would address the issues related to carried interest earned by investment advisors through partnerships in this manner. This bill applies only to the few PTPs which are investment advisers and would not affect the vast majority of PTPs. Senator Obama has made statements opposing the taxation of carried interest as capital gains rather than ordinary income, but has made no statements of which we are aware regarding the tax treatment of PTPs apart from this issue.
The authors of both the Lord Abbett and Lehman reports have been contacted and have agreed that their analyses should have included the word "financial"; and the current version of the Lord Abbett report posted on its websitedoes so.
Click here to see the Tax Policy Center analysis, which contains interesting details about the tax policies of both candidates.