Tax increase on carried interest struggles in the Senate

Earlier this week Senate Finance Chairman Max Baucus (D-Mont.) received a letter from Sen. Scott Brown (R-Mass.) and four Senate Democrats urging him not to increase the tax on carried interest, a form of compensation for investment managers as well as others.

The levy increase is to help pay for extending several business and individual tax breaks that expired last year, which will be included in a broader package extending several spending measures. The letter states a tax increase of this kind would be ill-timed, given the economy is on the verge of recovery.  

Brown is one of a handful of centrist Senate Republicans who Democratic leaders thought might support the tax increase. 

His opposition to the increase, along with Democratic Sens. Mark Warner (Va.), Jeanne Shaheen (N.H.), Bob Casey Jr. (Pa.), and Patty Murray (Wash.), who also signed the letter, makes it seem virtually impossible Senate leaders will get the 60 votes they need to pass the extender legislation from the chamber.

Democratic leaders in both chambers hope to advance the bill to the White House before the Memorial Day recess. To accomplish this feat, they might replace the tax increase on carried interest with a tax increase on foreign insurers, sources told The Hill last night. 

The replacement provision would no longer permit foreign-controlled insurers to write off profits made on U.S. policies and would raise raise approximately $17 billion, according to the Joint Committee on Taxation. 

The tax increase on carried interest is expected to raise $20 billion, meaning lawmakers would need to find additional offsets worth $3 billion if they go the foreign insurer route.