In addition to salaries, private equity managers rely especially on a share of the appreciation in the assets they oversee — known as carried interest. Those profits — sometimes in the millions of dollars — have been taxed as capital gains, at a rate much lower than the top marginal income tax rate applied to wages.
Mr. Biden has proposed to raise the top income tax rate to 39.6%, up from 37% under current law. Carried interest payments are currently taxed at 20%, the preferential capital gains rate.
The proposal is a contender to be included in a Democrats-only spending bill later this year that would enact much of Mr. Biden's agenda and would be funded by tax increases on corporations and the wealthy.
"In the middle of economic uncertainty during the pandemic, the private equity industry helped over 11 million workers keep their jobs, helped over 13,000 small business stay open, fueled sustainable energy projects, and ensured thousands of public servants have secure retirements," said Drew Maloney, the head of the American Investment Council, a private equity industry group. "Instead of dusting off old proposals that single out certain taxpayers, policymakers should encourage more private investment across America."
The potential revenue totals are just a small portion of the up to $3.5 trillion package Democrats are debating, but the issue represents a symbolic political win for lawmakers who say they want to raise taxes on the wealthiest Americans as a way to make the tax code more equitable and lessen income disparities.
"One of the most indefensible loopholes in the tax code allows wealthy private equity managers to be taxed at lower rates than nurses treating Covid patients and avoid paying any tax year after year after year," Mr. Wyden said in a statement. "Private equity managers will no longer be able to defer paying tax for years, if not decades."
Carried interest has been under attack from both Republicans and Democrats for years. In 2017, the private equity industry successfully fought off major changes in the Republican tax overhaul that year, when some Republicans considered cutting the tax break as a way to pay for reductions elsewhere. In the end, the GOP kept the carried-interest tax break intact but required that investors hold their investments for longer to get the benefit.
Sen. Shelley Moore Capito, R-W.Va., said she and some of her GOP colleagues would support changes to restrict carried interest
"I'm not for raising taxes," she said in an interview. "I think this is one that probably would have some bipartisan support"
The Senate will begin debating a budget resolution as soon as next week that will serve as the framework to advance the Democrats' economic agenda. The bill requires unanimous support from Democrats in Congress and will likely consume the legislative agenda in the fall.