Legislation aimed at eliminating a tax loophole that benefits the wealthy was introduced by two House Democrats on Feb. 6.
U.S. Reps. Marie Gluesenkamp Perez (D-WA) and Don Beyer (D-VA) introduced the Carried Interest Fairness Act, H.R. 1091, which would require carried interest income to be taxed at ordinary wage rates. Officials said closing the loophole would generate up to $6.5 billion in revenue over 10 years.
The bill, if enacted, would eliminate a loophole that allows investment managers to pay the lower 23.8 percent capital gains tax rate on income received as compensation, rather than the ordinary income tax rates of up to 40.8 percent if the income was taxed as wages.
“When wealthy investors have loopholes that give them a lower tax rate than hardworking Southwest Washington families, it’s a serious matter of fairness,” Gluesenkamp Perez said. “Our legislation would ensure carried interest income is taxed at ordinary rates – which is an important step toward leveling the playing field in our tax system. It’ll help us generate revenue to take on our deficit and support critical programs rural communities rely on.”
The legislation is endorsed by Communications Workers of America, Americans for Tax Fairness, the American Federation of Teachers (AFT), Public Citizen, American Federation of State, County and Municipal Employees (AFSCME), Alliance for Retired Americans, Americans for Financial Reform, Take on Wall Street, Patriotic Millionaires, 20/20 Vision, Main Street Alliance, American Federation of Government Employees, Small Business Minority, Economic Policy Institute, and the National Women’s Law Center.
“The carried interest loophole, which allows hedge fund managers to pay a lower rate on their taxes than ordinary working people, is terrible policy. There is no sound economic rationale for imposing a lower tax rate on the fees private equity managers charge their customers than the rates working-class Americans pay,” Beyer said. “This bill would close a loophole, raise revenue, and make our tax code fairer.”
Companion legislation from U.S. Sen. Tammy Baldwin (D-WI) has been introduced in the Senate.
“The carried interest tax loophole stands as one of the most glaring examples of how the ultra-wealthy exploit and rig our broken tax system to their advantage,” said David Kass, executive director of Americans for Tax Fairness. “This change is long overdue and represents a critical step toward a fairer tax system that ensures these uber-wealthy individuals pay their fair share like everyone else.”