Applying ‘Buffett Rule’ to Carried Interest Faces Steep Challenges

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Ensuring that millionaires and billionaires pay higher tax rates than middle-class households seems like a simple and popular concept for President Obama to sell to Congress, but his efforts to apply that principle to certain income earned by investment fund managers has failed in both Democrat- and Republican-led Congresses. Carried interest, the portion of profits from client investments that fund managers are allowed to keep for themselves as compensation, is currently taxed at the 15 percent capital gains rate if the investment was held for more than one year. Analysts, though, say that the payments look a lot more like ordinary income than investments worthy of capital gains treatment.