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 BaldwinBiden: I'll have a running mate picked next week The Hill's Morning Report - Presented by Facebook - Divided GOP to unveil COVID-19 bill Biden strikes populist tone in blistering rebuke of Trump, Wall Street MORE (Wis.) and Rep. Bill PascrellWilliam (Bill) James PascrellLawmakers urge administration to remove tariffs on European wine and spirits amid coronavirus pandemic The Hill's Campaign Report: Florida's coronavirus surge raises questions about GOP convention New Jersey Rep. Bill Pascrell wins Democratic primary MORE (D-N.J.) on Wednesday reintroduced legislation to end the carried-interest tax break that benefits investment-fund managers, criticizing President TrumpDonald John TrumpMark Kelly clinches Democratic Senate nod in Arizona Trump camp considering White House South Lawn for convention speech: reports Longtime Rep. Lacy Clay defeated in Missouri Democratic primary 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-CortezLongtime Rep. Lacy Clay defeated in Missouri Democratic primary Trump campaign rolls out TV spots in early voting states after advertising pause Trump adviser Jason Miller: Biden running mate pick 'his political living will' MORE (N.Y.), as well as Sens. Elizabeth WarrenElizabeth WarrenTrump says government to review 5M Kodak loan deal Michelle Obama supporters urge Biden to pick former first lady as running mate On The Money: Unemployment debate sparks GOP divisions | Pandemic reveals flaws of unemployment insurance programs | Survey finds nearly one-third of rehired workers laid off again MORE (Mass.), Amy KlobucharAmy KlobucharLobbying world Biden should pick the best person for the job — not the best woman House committee requests hearing with postmaster general amid mail-in voting concerns MORE (Minn.) and Kirsten GillibrandKirsten GillibrandBiden should pick the best person for the job — not the best woman Overnight Defense: Guardsman to testify Lafayette Square clearing was 'unprovoked escalation' | Dems push for controversial Pentagon nominee to withdraw | Watchdog says Pentagon not considering climate change risks to contractors Democrats urge controversial Pentagon policy nominee to withdraw 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.