Harvard's Greg Mankiw is former chairman of President Bush's Council of Economic Advisers. Chalk up another Republican who believes that "carried interest" earned by venture-capital managers and other private-equity pros should be taxed as ordinary income, not long-term capital gain. The top rate for ordinary income is more than twice the 15 percent levied on long-term capital gains. I wrote about this in Sunday's paper.

Mankiw:

"Several people have asked me my views on the taxation of carried interest. It is a complicated issue, and I don't pretend to be an expert on tax law, but here goes.

"Deferred compensation, even risky compensation, is still compensation, and it should be taxed as such. Paul Krugman put his nail on the head with this question:

""Why does Henry Kravis pay a lower tax rate on his management fees than I pay on my book royalties?"
"The analogy is a good one. In both cases, a person (investment manager, author) is putting in effort today for a risky return at some point in the future. The tax treatment should be the same in the two cases.

"One hedge fund manager told me that the initial value of the carried interest should be taxed as ordinary income and then the subsequent returns should be taxed at the capital gains rate. Maybe so, but taxing the terminal value as ordinary income (as is being proposed) seems strictly better for the manager in present value. It is as if the manager put the initial value of the carried interest in an tax-deductible IRA, deferring tax on this compensation until the money is withdrawn at a later date. The proposed reform, therefore, does not seem excessive.

"John Berry's recent article on carried interest suggests that the Bush administration is opposed to reform. If so, I fear the administration is on the wrong side of the issue."