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Senate Democrats offer bill to scrap tax break for investment managers

Senate Democrats offer bill to scrap tax break for investment managers
© Greg Nash

A group of Senate Democrats on Wednesday introduced legislation to end the carried-interest tax break that benefits investment managers after President BidenJoe BidenEx-Biden adviser says Birx told him she hoped election turned out 'a certain way' Cheney rips Arizona election audit: 'It is an effort to subvert democracy' News leaders deal with the post-Trump era MORE also called for scrapping the tax preference as part of his human infrastructure plan.

The tax break for carried interest allows investment managers to pay taxes on certain compensation income at capital gains rates, rather than ordinary income rates. The senators' bill would require carried interest to be taxed at ordinary income rates. The current top ordinary income rate is 37 percent, while the current top capital gains rate is 20 percent.

Democratic Sens. Tammy BaldwinTammy Suzanne BaldwinTo reverse the teaching shortage in low-income communities, give educators incentive to stay Senate Democrats offer bill to scrap tax break for investment managers Senate Democrats push Biden over raising refugee cap MORE (Wis.), Sherrod BrownSherrod Campbell BrownDemocrats reintroduce bill to create 'millionaires surtax' Cryptocurrency industry lobbies Washington for 'regulatory clarity' Biden 'allies' painting him into a corner MORE (Ohio) and Joe ManchinJoe ManchinMaher goes after Manchin: 'Most powerful Republican in the Senate' It's not just Manchin: No electoral mandate stalls Democrats' leftist agenda Progressives want to tighten screws beyond Manchin and Sinema MORE (W.Va.) took the lead on offering the bill, which has more than a dozen Democratic senators sponsoring it. Brown is a prominent progressive while Manchin is a prominent centrist, indicating widespread support in the Democratic caucus for ending the carried-interest preference.

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"Currently, there is a loophole in our tax code that allows investment managers to pay less taxes for wage income than the ordinary West Virginian and American worker. This legislation would close this loophole to ensure wealthy hedge fund managers are paying the fair amount in taxes," Manchin said in a statement. "I urge my colleagues on both sides of the aisle to support this commonsense legislation that treats all workers fairly.”

The introduction of the bill comes after Biden proposed in his American Families Plan to do away with the carried-interest preference. Biden also proposed raising both the top ordinary income tax rate and the top capital gains rate to 39.6 percent for high-income taxpayers. Biden is proposing to use the revenue raised from these tax increases to pay for spending in areas such as child care and education.

Former President TrumpDonald TrumpEx-DOJ official Rosenstein says he was not aware of subpoena targeting Democrats: report Ex-Biden adviser says Birx told him she hoped election turned out 'a certain way' Cheney rips Arizona election audit: 'It is an effort to subvert democracy' MORE had also called for ending the carried-interest tax break when he ran for president in 2016, but his 2017 tax law did not do away with the preference. The 2017 law did increase the amount of time investments had to be held for to qualify for the tax break, from one year to three years.

“Trump broke his promise to close this loophole and actually signed a Republican tax bill that kept it in place," Baldwin said in a statement. "President Biden has called on Congress to close the carried interest tax loophole and this legislation will do it. Now let’s get it done and use this revenue to invest in workers and economic growth.”

Democratic senators have also introduced versions of the carried-interest bill in previous Congresses. A version of the bill was introduced in February in the House by Reps. Bill PascrellWilliam (Bill) James PascrellNew report reignites push for wealth tax House Democrats to Schumer: Vote again on Jan. 6 probe US files first trade complaint against Mexico over tampered union vote at GM plant MORE (D-N.J.), Andy LevinAndrew (Andy) LevinDemocrats introduce bill allowing college athletes to organize Senate Democrats offer bill to scrap tax break for investment managers Overnight Energy: Update on Biden administration conservation goals | GOP sees opportunity to knock Biden amid rising gas prices | Push for nationwide electric vehicle charging stations MORE (D-Mich.) and Katie Porter (D-Calif.). A number of liberal groups and labor unions support the measure, including the AFL-CIO, the Patriotic Millionaires and the Working Families Party.

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The American Investment Council (AIC), a group representing the private equity industry, has expressed opposition to the bill, arguing that it would hurt the economy. 

"As workers and local economies continue to struggle during this pandemic, Washington should not punish long term investment that creates jobs, builds businesses in communities, and develops more renewable energy across America,” AIC President and CEO Drew Maloney said in a statement,

Updated at 11:35 a.m.