Kyl opposes taxing carried interest at any level

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.