Three House democrats floated legislation Tuesday to close the carried interest loophole, which they say is a tax dodge for wealthy private equity and hedge fund managers.
The Carried Interest Fairness Act would tax carried interest compensation at ordinary income tax rates and treat it as wage income subject to employment taxes.
The bill is sponsored by Rep. Bill Pascrell, D-N.J., chairman of the House Ways and Means Subcommittee on Oversight; Rep. Andy Levin, D-Mich.; and Rep. Katie Porter, D-Calif.
As it stands now, the lawmakers explained, the carried interest loophole allows Wall Street firms — like private equity and hedge funds — to pay the lower capital gains rate on their income (15% or 20%), rather than paying ordinary income tax rates (up to 37%).
“The capital gains break would still apply for those who truly put money at risk, such as private equity partners who invest their own money in their funds,” the lawmakers said. “But all income from managing a firm’s assets would be taxed at ordinary rates.”
Pascrell said Tuesday in a statement that “Over the last four years, our tax system has continued to become more unfair. Our two-tier tax code, with one code for working class Americans, and another full of special breaks for the people at the very top, has destroyed public confidence in our tax structure that must be restored.”
The carried interest loophole, Pascrell continued, “has allowed private equity tycoons to pay lower tax rates than their secretaries. This year, millions of Americans are struggling to survive and are entitled to a fairer tax system. This loophole has survived too long and we are going to push hard to see that it is finally closed.”