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Carried interest is taxed at the capital gains rate because it is a profits interest on a long-term capital asset. This tax policy encourages the risk taking that is required to start and grow companies. Changing the taxation of carried interest would upend a long-standing, successful policy that has helped America prosper for more than 100 years. This white board video explains how partnerships, including private equity, venture capital and real estate, earn carried interest by making successful investments.