Carried interest tax increase could be struck from extenders

Lawmakers might replace a tax increase on carried interest with a tax increase on foreign insurers in legislation extending several measures, sources told The Hill. 

The reason for the possible change is Senate opposition to increasing the tax on carried interest at a time when the market is just starting to rebound. 

The sources stressed that no determination has been made on the swap, but there does appear to be plenty of resistance to taxing carried interest at a higher rate. 

"It does have its challenges because there's a lot of concern that that's going to change the way a number of businesses do business," said Sen. Ben Nelson (D-Neb.), a moderate Democrat whose vote is often key to passing legislation. "I'm looking very cautiously at that [provision]."  

More than a handful of senators in both parties have expressed similar concerns over the measure, saying the economy could be negatively affected by essentially increasing taxes on investments. 

The term "carried interest" describes a manager's share of profits in certain types of partnerships. Payouts are currently taxed at the 15 percent of capital gains rate, but Democrats want the levy to resemble ordinary income rates, which are expected to be more than 39 percent next year. 

The extender bill seeks to eventually increase the tax on carried interest to ordinary income rates. The provision raises approximately $20 billion and would help pay for the extension of a number of individual and business tax breaks that expired in January. 

The replacement provision would no longer permit foreign-controlled insurers to write off profits made on U.S. policies. It would raise approximately $17 billion, according to the Joint Committee on Taxation. That means lawmakers would need to find additional offsets worth $3 billion if they go the foreign insurer route.