Dems offer bill to end tax break for investment-fund managers

Dems offer bill to end tax break for investment-fund managers
© Stefani Reynolds

Democratic Sen. Tammy BaldwinTammy Suzanne BaldwinWarren vows to fight 'tooth and nail' for LGBTQ protections as president This week: House to vote on bill to ban LGBTQ discrimination Overnight Defense — Presented by Huntington Ingalls Industries — Pentagon approves transfer of .5B to border wall | Dems blast move | House Dem pushes Pelosi to sue over Trump's Yemen veto MORE (Wis.) and Rep. Bill PascrellWilliam (Bill) James PascrellDemocrats sense new momentum in Trump tax return fight Dems walk Trump trade tightrope Treasury, IRS set to miss subpoena deadline on Trump tax returns MORE (D-N.J.) on Wednesday reintroduced legislation to end the carried-interest tax break that benefits investment-fund managers, criticizing President TrumpDonald John TrumpTrump rips Dems' demands, impeachment talk: 'Witch Hunt continues!' Nevada Senate passes bill that would give Electoral College votes to winner of national popular vote The Hill's Morning Report - Pelosi remains firm despite new impeachment push MORE for failing to end the "loophole" in his tax law despite pledging to do so during the 2016 election.

"It’s simply unfair for our workers to pay a higher tax rate than a millionaire on Wall Street, so President Trump needs to stand by his word, support our legislation and finally close the carried interest tax loophole for Wall Street,” Baldwin said in a statement.

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The carried interest tax break allows some investment managers, such as private-equity fund managers, to have certain income taxed as capital gains rather than as ordinary income. The top rate on capital gains is 23.8 percent, including an investment tax for high earners created under ObamaCare, while the top rate for ordinary income is 37 percent.

Under the Democrats' legislation, carried-interest income would be taxed at ordinary-income rates instead of at capital gains rates.

Trump had called for an elimination of the carried-interest tax break when he ran for president. But the tax-cut law he signed in December 2017 did not end the tax preference. Instead, the law required investment managers to hold assets for at least three years in order to qualify for the tax preference, up from one year under previous law.

Democrats argue that the carried-interest preference should be eliminated because it allows investment-fund managers to pay a lower tax rate than middle-class workers.

“Millions of Americans filing their taxes are finding that the refunds they anticipated will not materialize this year," Pascrell said. "They and many other Americans are rightly outraged at a tax code that is badly skewed to favor of some of our wealthiest citizens and corporations.”

A number of other Democratic lawmakers have co-sponsored the legislation, including prominent freshman Rep. Alexandria Ocasio-CortezAlexandria Ocasio-CortezThe Memo: Trump allies see impeachment push backfiring on Democrats Republican wins special House election in Pennsylvania WHIP LIST: Dems who support an impeachment inquiry against President Trump MORE (N.Y.), as well as Sens. Elizabeth WarrenElizabeth Ann Warren2020 Dems break political taboos by endorsing litmus tests Biden says Congress must move to protect abortion rights Harris seeks Iowa edge with army of volunteers MORE (Mass.), Amy KlobucharAmy Jean KlobucharHarris seeks Iowa edge with army of volunteers GOP senators split over antitrust remedies for big tech Fox's Brit Hume fires back at Trump's criticism of the channel MORE (Minn.) and Kirsten GillibrandKirsten Elizabeth GillibrandGOP faces new challenge in 2020 abortion fight 2020 Dems break political taboos by endorsing litmus tests Biden says Congress must move to protect abortion rights MORE (N.Y.), who are running for president.

A host of labor unions and liberal groups have endorsed the legislation, including the AFL-CIO, MoveOn.org and the Patriotic Millionaires.

But the American Investment Council (AIC), which represents the private-equity industry, criticized the bill, arguing that it would hurt the economy.

“Sen. Baldwin and Rep. Pascrell’s discriminatory tax increase has been rejected repeatedly by economists, tax experts, and bipartisan congresses," AIC President and CEO Drew Maloney said in a statement. "This bill is a direct assault on capital gains treatment. It would unnecessarily harm entrepreneurs, business owners, endowments, pension funds, and American workers in every state and congressional district in the country.”

Americans for Tax Reform President Grover Norquist also criticized the bill.

“The left’s stated long-term goal is to tax all capital gains as ordinary income. Taxing carried interest is the opening salvo in this goal,” Norquist said in a statement. “On principle, carried interest should be taxed as capital gains not at artificially higher rates.”

The Joint Committee on Taxation has estimated that taxing carried interest as ordinary income would raise $14 billion over 10 years.