Those in Congress who want to raise taxes on real estate partnerships probably aren't thinking much about the countless urban neighborhoods in Chicago and other cities that benefit from long-term investment. If they did, they'd likely reconsider their proposal to more than double taxes on those who make such investments.
Back in 2006, I co-founded a real estate firm in Chicago that invests in emerging and historically neglected urban neighborhoods. We invest primarily in once-blighted neighborhoods, helping businesses to open and grow, and allowing middle- and lower-income residents to work and live safely. In many of the neighborhoods where we invest, poverty, crime and the lack of opportunity had become accepted as unchangeable facts of life. As an African-American, I began a career in urban real estate because I viewed it as a way to positively impact communities in need of help and revitalization.
By investing in troubled neighborhoods, my partners and I reject the notion that these communities are beyond help. Although my firm is still relatively new, we've already used private financing to acquire an office building on the south side of Chicago, and the acquisition has created property maintenance, landscaping and janitorial jobs for moderate and low-income residents of the neighborhood. And this is one of the great benefits of our business strategy: we create jobs every time we acquire a new real estate asset.
That's why I'm shaking my head when I see that Congress wants to change the way real estate, venture capital and private equity investment partnerships are taxed.
Here's what Congress wants to do: For these partnerships and these partnerships alone, Congress wants to tax profits from long-term investments as ordinary income -- - as if these profits were guaranteed -- - instead of the 15 capital gains tax rate.
And that's not all. In the ultimate double whammy, Congress also wants to eliminate the capital gains tax treatment individuals and firms have enjoyed when they sell all or part of the business they helped create.
I believe strongly in what I do, but I can think of plenty of general partners who, back in 2006, would have thought twice about starting their firms if they knew that they would be penalized for taking risks and earning profits and building equity in their firms.
I'm not a tax expert, so I'll largely leave the detailed tax analysis to others. However, I will point out that as a risk-taking, entrepreneur, I know firsthand that one of the fundamental principles underlying the tax code is that those who take chances to build businesses and create jobs, including private equity and investment partnerships, should be rewarded with the lower capital gains tax rate when their investments pay off. The revenues all of us receive from our investments are entirely risk-based, with no guarantees, and shouldn't be taxed like a salary.
So what happens if Congress passes these tax increases?
To me, the answer is clear:
The bill under consideration in Senate would reduce the amount of capital we have left to invest in commercial and residential projects, especially in neighborhoods where developers can have difficulty finding lenders - like the ones where I invest.
Congress should remember that the first rule of public policy change is to do no harm. Before they vote for this unprecedented tax increase, they should think hard about how this proposed tax increase will impact all people and all the neighborhoods that benefit from investment made by firms like mine.