U.S. PIRG pushes to keep alive carried interest tax increase

By Jay Heflin - 05/14/10 02:44 PM ET

The left-leaning U.S. Public Interest Research Group (U.S. PIRG) will embark on an eleventh-hour push to keep a tax increase on carried interest a part of legislation extending several measures.

"We're really trying to communicate to the senators that there's a lot of support for closing this loophole," U.S. PIRG's Nicole Tichon told The Hill on Friday. "There's a lot of support, but I also know there is very vocal opposition, and it's very powerful. We know it's an uphill battle."

One hurdle confronting the group is a letter from five senators to Finance Chairman Max Baucus (D-Mont.) asking him to ensure the tax increase does not affect all sectors using this form of compensation.

"We believe that this change without proper protection for the venture capital industry could undermine the ability of small businesses to create jobs and get the economy back on track," the letter states, adding, "A change in the carried interest provision could greatly reduce investment in our nation's emerging sectors."

Democratic Sens. Mark Warner (Va.), Jeanne Shaheen (N.H.), Bob Casey Jr. (Pa.), Patty Murray (Wash.), and Republican Sen. Scott Brown (Mass.) signed the letter.

The bill looks to ultimately tax carried interest as ordinary income, which has rates that go above 39 percent. The compensation is now taxed at the 15 percent capital gains rate. The change is expected to raise $20 billion.

Tichon argues the current structure on carried interest is unfair to other workers. She points out that a single person earning between $8,375 and $34,000 is taxed at 15 percent. Hedge fund managers can earn up to $570 million in a good year, all of which would be taxed at 15 percent if the compensation was considered carried interest.

"No one wants to hurt venture capitalists – people who are actually investing their money," she said. "But for folks who are just performing a service and managing the money, we don't see that any differently than any other job. Why should one group be signaled out to get a tax break? That is hard to swallow."

Her group will be teaming up with other organizations in the coming few weeks to press senators into support the tax increase.

"It's just the right thing to do," she said. "We don't really see it as a payfor, it's just sound policy."