Terrific op-ed in today's Wall Street Journal:
"...Senators [Baucus and Grassley] do ask a fair question: Why should private equity partnerships have the advantages of corporate designation -- most importantly the access to capital markets -- without having to pay corporate income tax? One answer is that the companies owned by these equity funds do pay corporate income tax when they earn income. The payments these companies make to the equity partnership are dividend payments -- and thus should be taxed as such. There is a sound rationale for the passive income exclusion: It ensures that corporate income tax isn't collected twice on the same income stream.
Under the Baucus-Grassley proposal, Blackstone's investment income would be taxed first at a 35% corporate tax rate on, say, American Widget Company when it earned the profits; taxed again when those profits are passed on to Blackstone at another 35% corporate income tax rate; and then taxed a third time at a 15% capital gains tax when Blackstone distributes its earnings to partners and shareholders. Surely Senators Baucus and Grassley don't favor triple taxation?..."