Legislation recently introduced in the U.S. Senate would close the carried interest loophole and ensure hedge fund managers and private equity CEOs pay their fair share in taxes.
The carried interest loophole permits hedge funds executives and private equity firms to re-characterize compensation from traditional income to capital gains in order to opt into lower tax rates or put off paying taxes indefinitely.
The Ending the Carried Interest Loophole Act would prevent the re-characterization of income by requiring fund managers to recognize their annual compensation. Compensation then would be taxed at ordinary income rates. Closing the loophole would raise $63.1 billion over 10 years, according to a Joint Committee on Taxation estimate.
U.S. Sen. Ron Wyden (D-OR), Senate Finance Committee ranking member, and U.S. Sens. Angus King (I-ME) and Sheldon Whitehouse (D-RI) introduced the bill. It has the support of Americans for Tax Fairness, the Patriotic Millionaires, and Small Business Majority.
“The carried interest loophole allows some of the wealthiest individuals in our country to pay a lower tax rate on their compensation while middle-class Americans pay their fair share in taxes,” King said. “Our Ending the Carried Interest Loophole Act is about restoring basic fairness and common sense to the tax code, not to mention making a dent in our national deficit.”