U.S. Sens Ron Wyden (D-OR), Sheldon Whitehouse (D-RI), and Angus King (I-ME) introduced a bill last week that would close the carried interest loophole and ensure hedge fund managers and private equity CEOs pay their fair share in taxes.
The senators said that the carried interest loophole has been used by executives of hedge funds and private equity firms to re-characterize their compensation. This would help them secure a lower tax rate or put off paying taxes indefinitely.
Their bill, the Ending the Carried Interest Loophole Act, would close that loophole, and prevent re-characterization of income. It would require fund managers to recognize their annual compensation, which would then be taxed at ordinary income rates.
“Our nation’s tax code is riddled with loopholes that give a leg up to those at the very top, while everyone else is forced to play by a different set of rules,” Wyden, chair of the Senate Finance Committee, said. “Hard-working Americans who pay taxes diligently out of each paycheck are rightfully demanding a tax code that treats everyone fairly.”
Recently, Wyden convened a hearing during which the Finance Committee heard a firsthand account of how wealthy taxpayers use legal loopholes in the U.S. tax code to dodge taxes.
“Wealthy hedge fund managers and private equity executives exploit the carried interest loophole to skip out on paying their fair share. Financiers shouldn’t be able to pay lower rates than hardworking middle-class Americans. We can make the tax code fairer for everyone by striking the carried interest loophole and passing my Buffett Rule legislation to ensure the highest earners pay at least a 30 percent effective tax rate,” Whitehouse said.
Along with Wyden, Whitehouse and King, the bill was sponsored by Sens. Elizabeth Warren (D-MA), Bernie Sanders (I-VT), Brian Schatz (D-HI), Jack Reed (D-RI), John Fetterman (D-PA) Edward Markey (D-MA), and Mazie Hirono (D-HI).
“Hardworking Americans across the country, and people in Maine, pay their fair share in taxes to support critical federal services like infrastructure, healthcare, and affordable housing,” King said. “Meanwhile, the tax law allows wealthy private equity managers to pay a low rate of tax on their compensation. That’s just wrong.”
The bill is supported by Americans for Tax Fairness; Morris Pearl, chair of the Patriotic Millionaires; and the Small Business Majority.
“The carried interest loophole is the epitome of everything that is wrong with our tax code. There is no reason – policy, political, or otherwise – for billionaire hedge fund managers and private equity executives to get preferential tax treatment on income they earn managing other people’s investments. Moreover, there is no justification for allowing the deferral of paying taxes year after year, a privilege not afforded to average taxpayers. Congress must pass the Ending the Carried Interest Loophole Act without delay and end this egregious, unjustifiable loophole once and for all,” said Pearl, a former managing director at BlackRock.