President Obama and some Democrats in Congress are signaling their renewed interest in raising taxes on carried interest, which is profit on the sale of a long-term capital asset. Carried interest is appropriately taxed as a capital gain as opposed to ordinary income, thus encouraging the risk taking that is required to save, start, and grow companies. Changing the taxation of carried interest would upend the private equity business model – a model that is responsible for pumping hundreds of billions of dollars into the U.S. economy each year, while strengthening businesses for the long-term.

This educational whiteboard video by the Private Equity Growth Capital Council answers questions about what carried interest really is, how it works, and why it’s appropriately taxed at the capital gains rate.