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 BaldwinSenators ask FDA to crack down on non-dairy milks, cheeses Senate fails to get deal to speed up fight over impeachment rules Lawmakers introduce bill to bolster artificial intelligence, quantum computing MORE (Wis.) and Rep. Bill PascrellWilliam (Bill) James PascrellHouse Democrat presses Pentagon after Trump downplays severity of US troop injuries in Iran attack House approves Trump's USMCA trade deal amid shadow of impeachment A solemn impeachment day on Capitol Hill MORE (D-N.J.) on Wednesday reintroduced legislation to end the carried-interest tax break that benefits investment-fund managers, criticizing President TrumpDonald John TrumpWarren: Dershowitz presentation 'nonsensical,' 'could not follow it' Bolton told Barr he was concerned Trump did favors for autocrats: report Dershowitz: Bolton allegations would not constitute impeachable offense 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-CortezOcasio-Cortez rips 'public charge' decision: 'The American Dream isn't a private club with a cover charge' Democrat questions new border chief's involvement in Facebook group with racist, sexist posts The DCCC's 'blacklist' protects a white male political status quo MORE (N.Y.), as well as Sens. Elizabeth WarrenElizabeth Ann WarrenWarren: Dershowitz presentation 'nonsensical,' 'could not follow it' On The Money: Stocks close with steep losses driven by coronavirus fears | Tax season could bring more refund confusion | Trump's new wins for farmers may not undo trade damage Overnight Energy: Sanders scores highest on green group's voter guide | Trump's latest wins for farmers may not undo trade damage | Amazon employees defy company to speak on climate change MORE (Mass.), Amy KlobucharAmy Jean KlobucharOvernight Energy: Sanders scores highest on green group's voter guide | Trump's latest wins for farmers may not undo trade damage | Amazon employees defy company to speak on climate change Sanders surges to first in New Hampshire: poll Majority sees no ties between business experience and political success MORE (Minn.) and Kirsten GillibrandKirsten GillibrandGOP-Biden feud looms over impeachment trial Sanders defends vote against USMCA: 'Not a single damn mention' of climate change The Hill's Morning Report — President Trump on trial 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.