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 BaldwinIt's time for Congress to establish a national mental health crisis number The Hill's Morning Report - Presented by Better Medicare Alliance - Dems unveil impeachment measure; Vindman splits GOP The Hill's Morning Report - Presented by Better Medicare Alliance - Dems shift strategy on impeachment vote MORE (Wis.) and Rep. Bill PascrellWilliam (Bill) James PascrellHouse panel to consider temporarily repealing SALT deduction cap White House, Democrats edge closer to deal on trade White House, Democrats close to USMCA trade deal: report MORE (D-N.J.) on Wednesday reintroduced legislation to end the carried-interest tax break that benefits investment-fund managers, criticizing President TrumpDonald John TrumpSanders urges impeachment trial 'quickly' in the Senate US sending 20,000 troops to Europe for largest exercises since Cold War Barr criticizes FBI, says it's possible agents acted in 'bad faith' in Trump probe 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-CortezWarren proposes 'Blue New Deal' to protect oceans Trump tops list of most tweeted about politicians in 2019 Buttigieg campaign says 2000 people attended Iowa rally MORE (N.Y.), as well as Sens. Elizabeth WarrenElizabeth Ann WarrenThe media have fallen out of love with Bernie, but have voters? Buttigieg surrogate on candidate's past consulting work: 'I don't think it matters' Steyer rolls out 5B plan to invest in historically black colleges MORE (Mass.), Amy KlobucharAmy Jean KlobucharPoll: Biden leads Democratic field, Warren drops to third place 'Minor league cities' need new federal partnership The Hill's Morning Report - Sponsored by AdvaMed - Democrats to release articles of impeachment today MORE (Minn.) and Kirsten GillibrandKirsten GillibrandOvernight Defense: Bombshell report reveals officials misled public over progress in Afghanistan | Amazon accuses Trump of 'improper pressure' in Pentagon contract decision | House Judiciary holds final impeachment hearing Gillibrand demands hearing following release of 'Afghanistan Papers' White House, Congress near deal to give 12 weeks paid parental leave to all federal workers 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.