Kyl opposes taxing carried interest at any level

Senate Republican Whip Jon Kyl (R-Ariz.) on Wednesday said he opposes a plan by tax writers to pare back the tax on carried interest to help pay for legislation extending several expired tax breaks. 

"The reason why they are trying to pare it back is cause they realize that it is a bad thing to do for American competitiveness," he said. "It kills our ability to do business abroad." 

Carried interest, which refers to investment-related compensation that is taxed at lower capital gains rates instead of the higher marginal rates, has long been a potential revenue source for House Democrats who seek to tax the compensation as ordinary income. But Senate resistance to the change has stopped their effort. 

To win their support, congressional tax writers are looking at ways to limit the tax carried interest and still garner enough support in the upper chamber to pass the extender bill. One option is taxing it at a level between the current capital gains rate and ordinary income tax rates, lawmakers told The Hill.

Senate Finance Chairman Max Baucus (D-Mont.) acknowledged the effort on carried interest, but was unclear on if he supported the move. 

"I'm sure there are lots of efforts to pare it back," he told The Hill. "I think carried interest is very much on the table, at least some version, [but] I don't know what." 

Kyl argues that even a minimal tax increases on carried interest would hit the real estate market and equity firms hard since the both sectors are struggling to recovery from the recession.

"We shouldn't use it at all," he said.