Another bill to end the carried interest tax treatment for investment fund managers was introduced in Congress on Wednesday by two Democrats: Sen. Tammy Baldwin of Wisconsin and Rep. Bill Pascrell of New Jersey.
Carried interest is the portion of an investment fund's returns eligible for a capital gains tax rate of 23.8% instead of the ordinary income tax rate up to 37%. The proposed legislation would tax carried-interest income at ordinary-income rates. According to the non-partisan Congressional Budget Office, closing the carried interest loophole would raise $14 billion in revenue over 10 years.
President Donald Trump campaigned on the promise to do away with the loophole in 2016. During 2017's tax reform debate, efforts to repeal it were blocked, with the only change being that a fund's general partners must hold the relevant investments for three years, instead of one, starting in 2018.
"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," Ms. Baldwin said in a statement.
Several Democratic lawmakers are co-sponsoring the bill, which is endorsed by progressive groups, labor unions and the AFL-CIO. Damon Silvers, AFL-CIO director of policy and special counsel, in the same statement called it "the single most outrageous loophole in the tax code. It forces the American taxpayer to subsidize the pay of Wall Street titans that conduct job-killing leveraged buyouts and charge pension investors exorbitant fees."
Drew Maloney, president and CEO of the American Investment Council, the private-equity industry advocacy group, said in a separate statement that the tax increase, which he called discriminatory, "has been rejected repeatedly by economists, tax experts and bipartisan congresses."
"It would unnecessarily harm entrepreneurs, business owners, endowments, pension funds and American workers in every state and congressional district in the country," he said.
Mr. Maloney noted that in Wisconsin alone, private equity supports the jobs of 50,000 of Ms. Baldwin's constituents and has invested more than $47 billion in Wisconsin businesses from 2012-2017, while the $101.1 billion Wisconsin Retirement System, Madison, "was buoyed by private equity investment, which returned 15.5 % in 2017."
Ms. Baldwin noted that during consideration of similar legislation in 2015, the current chairman of the Senate Finance Committee, Charles Grassley of Iowa, said the proposal "is not about raising taxes on capital income. It is not an attack on the investor class. It is about the definition of capital income versus labor income."