Wyden, Whitehouse, King Lead Introduction of Bill Closing Carried Interest Tax Loophole

Wyden, Whitehouse, King Lead Introduction of Bill Closing Carried Interest Tax Loophole

Bill Would Ensure Hedge Fund Managers Pay Fair Share in Taxes by Preventing Deferral of Tax Payments

Washington, D.C. - Senate Finance Committee Ranking Member Ron Wyden (D-Ore.), Senator Sheldon Whitehouse (D-R.I.) and Senator Angus King (I-Maine) led colleagues today in introducing legislation to close the carried interest loophole and ensure hedge fund managers and private equity CEOs pay their fair share in taxes.

"Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole," said Senator Wyden. "For several decades now we've had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start."

"Even Warren Buffett knows that wealthy hedge fund managers and private equity bosses shouldn't be able to pay lower tax rates than working families. As Republicans set their eyes on even more budget-busting giveaways for their billionaire donors, our legislation to strike the dreaded carried interest loophole would make the tax code fairer for everyone," said Senator Whitehouse.

"Whether you're a lobsterman or a logger, a small business owner or a teacher, Maine people expect a level playing field," said Senator King. "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. 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."

The carried interest loophole has long been used by executives of hedge funds and private equity firms to re-characterize their 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 close that loophole, and prevent re-characterization of income by requiring fund managers to recognize their annual compensation, which would then be taxed at ordinary income rates. The Joint Committee on Taxation estimated in 2023 that the bill would raise $63.1 billion over 10 years.

Legislative text is available here. A detailed summary of the legislation is available here. A one-page summary of the legislation is available here.

The legislation is cosponsored by Senators Warren (D-Mass.), Sanders (I-Vt.), Smith (D-Minn.), Lujan (D-N.M.), Reed (D-R.I.), Hirono (D-Hawaii), Fetterman (D-Pa.), Markey (D-Mass.), Schatz (D-Hawaii), Blumenthal (D-Conn.), and Van Hollen (D-Maryland).

Additional statements of support:

David Kass, Executive Director of Americans for Tax Fairness: "The carried interest loophole favoring the wealthy and powerful stands as one of the most blatant ways extraordinarily rich individuals manipulate and distort our broken system for immense personal gain. It's straightforward logic- investment managers shouldn't pay less compared to healthcare workers, educators, and the majority of US workers. This action is far past due and symbolizes a vital move toward a fairer tax system that guarantees millionaires and billionaires contribute their fair share like everybody else."

Morris Pearl, Chair of the Patriotic Millionaires and former managing director at BlackRock: "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."

John Arensmeyer, founder & CEO, Small Business Majority: "Small Business Majority's research has found that small businesses say our nation's tax system primarily benefits large businesses that don't pay their fair share in taxes while offering too little help for small firms. We are happy to support legislation that would close the carried interest loophole in order to help level the playing field for Main Street."

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