I will return to the carried interest issue, but first let me say that all income should be taxed alike. Favorable taxation of capital gains is unjustified, except perhaps as a way to artificially inflate the stock market. Investors need to invest their money; they don't need a tax incentive to do so. Any tax incentive should go to those who make productive use of capital,not those providing it. As a policy matter on what the tax law should be, rather than is, the private equity managers have a better claim to the capital gains tax break than the passive investors. More important in my view is that my grocery store clients will pay a 15% tax on the return on their investment if they invest in WalMart but a 37.9% tax (including the Medicare tax) if they reinvest in their own business.