Congress may be ready to close the "carried interest" loophole, which allows wealthy investment fund managers to pay taxes at lower rates than middle-income people.
As a new report from CTJ explains, carried interest is the share of profits that investors pay to compensate certain people for managing their money. The investment managers who receive carried interest have been allowed to pretend that this compensation represents profits on money they have invested themselves, thus entitling them to pay taxes at the low capital gains rate of 15 percent rather than the regular rate of 35 percent that other highly compensated workers pay.
Three times the House has voted to close the “carried interest” loophole and three times the Senate has failed to pass the provision. The latest version of the loophole closer was included in the “tax extenders,” a bill that extends expiring tax breaks, which was approved by the House on December 9. The Senate left the carried interest provision out of its version of the extenders bill, which they passed on March 10, and instead offset the costs of the tax breaks with a provision closing the “black liquor” loophole. However, that provision wound up in the final healthcare package, leaving the Senate extenders bill without enough revenue to cover the costs.
Senate Finance Committee Chairman Max Baucus indicated last week that “carried interest will probably be part of the offsets.” That released a flurry of lobbying activity by taxpayers trying to hold onto their favored status.