Joint Committee: Ending Carried Interest Loophole Would Raise $15.6B Over 10 Years

Sep 17 2015 | 6:53pm ET

With carried interest becoming a political football, the Congressional Joint Committee on Taxation has released an estimate of what ending the disputed tax structure paid by many private equity and alternative investment fund managers would raise. 

According to the joint committee, ending the so-called loophole would raise an estimated $1.4 billion in fiscal 2016, and $15.6 billion over the next 10 years. The regulations allow many fund managers to tax some of their income at the 20% long-term capital gains rate instead of ordinary income tax rates that can be as high as 39.6%. 

House Ways and Means Committee Ranking Member Sander Levin (D-Michigan) and Senator Tammy Baldwin (D-Wisconsin) asked the committee to study the issue and report back the increased tax revenue that could be expected were income considered carried interest was taxed at the higher rates. In June, the two jointly sponsored a bill, numbered HR2889 and named The Carried Interest Fairness Act, that would end the carried interest treatment and require income earned managing other people’s money to be taxed at ordinary income rates. 

In a statement Thursday, Levin lauded the increasingly bipartisan support for addressing the issue. “Thankfully, closing the carried interest loophole has gathered more bipartisan support in recent months, joining our push - through this legislation - so all Americans can be treated fairly under the law.”

Opponents of reform note that carried interest is merely capital gains and its use is not limited to rich hedge fund and private equity managers, but real estate partnerships and a wide range of other investors who are encouraged by the treatment to seek out longer-term investments. 

Carried interest has long been in the sights of Congressional action, with no less than four prior House bills reforming the practice passing (the most recent in 2010) only to die in the Senate. Despite the relatively low dollar figure scrapping the rule would generate, it is making for good election-year populism, with none less than avowed capitalist Donald Trump advocating for the change during the second Republican presidential debate on September 16. 

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