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 BaldwinFederal funding for Chinese buses risks our national security Democrats threaten to withhold defense votes over wall The Trump downturn: Trouble ahead for the US economy MORE (Wis.) and Rep. Bill PascrellWilliam (Bill) James PascrellLawmakers, social media users praise photo of Pelosi confronting Trump Lawmakers focus their ire on NBA, not China Hillary Clinton swipes at NBA over Hong Kong controversy MORE (D-N.J.) on Wednesday reintroduced legislation to end the carried-interest tax break that benefits investment-fund managers, criticizing President TrumpDonald John TrumpDemocratic senator rips Trump's 'let them fight' remarks: 'Enough is enough' Warren warns Facebook may help reelect Trump 'and profit off of it' Trump touts Turkey cease-fire: 'Sometimes you have to let them fight' 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 mourns Cummings: 'A devastating loss for our country' Booker endorses Lipinski challenger Lawmakers from both sides of the aisle mourn Cummings MORE (N.Y.), as well as Sens. Elizabeth WarrenElizabeth Ann WarrenWarren warns Facebook may help reelect Trump 'and profit off of it' Martin Luther King Jr.'s daughter knocks Zuckerberg for invoking her father while defending Facebook Overnight Health Care — Presented by National Taxpayers Union — House Dems advance drug pricing bill | Cases of vaping-related lung illnesses near 1,500 | Juul suspends sales of most e-cigarette flavors MORE (Mass.), Amy KlobucharAmy Jean KlobucharOvernight Health Care — Presented by National Taxpayers Union — House Dems advance drug pricing bill | Cases of vaping-related lung illnesses near 1,500 | Juul suspends sales of most e-cigarette flavors 2020 Democrats tell LGBTQ teens they're not alone on Spirit Day 'We lost a giant': 2020 Democrats mourn the death of Elijah Cummings MORE (Minn.) and Kirsten GillibrandKirsten GillibrandOvernight Defense — Presented by Boeing — House passes resolution rebuking Trump over Syria | Sparks fly at White House meeting on Syria | Dems say Trump called Pelosi a 'third-rate politician' | Trump, Graham trade jabs Senate confirms Trump's Air Force secretary pick Lobbying world 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.