Crunch Time for Congress

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The House Ways and Means Committee has pushed back its plans to hold a hearing on the tax loophole for private equity "carried interest" until September. The loophole allows private equity fund managers to pay only the 15 percent capital gains tax on carried interest, which is the majority of their compensation in many cases, even though they actually don't make capital investments. The result is that fund managers making millions, even over a billion dollars a year, pay a lower tax rate than middle-income people. A bill introduced by Sander Levin (D-MI) (H.R. 2834) would close this loophole and tax carried interest as ordinary income. The industry has begun a fierce lobbying and PR campaign to defend this loophole, and CTJ has issued its own response to the deceptive claims being made.

The Senate Finance Committee is currently considering a more limited bill (S. 1624) that would affect those private equity firms that are publicly traded partnerships, requiring them to pay corporate taxes like other publicly traded companies. Finance Chairman Max Baucus and ranking member Charles Grassley (R-IA) have indicated that they are interested in exploring the possibility of passing another bill in the future along the lines of the Levin bill. The committee held a hearing on the issue on July 11 and will hold another on July 31. Baucus expects to pass S. 1624 in the fall and consider a broader bill sometime after that.

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