Carried Interest Tax Break Might Be Safe in House Plan

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By Laura Davison

Carried interest, the tax break for private equity fund managers’ profits, appears set to make it through a rewrite of the tax code unchanged, a House Republican said.

Under the House GOP tax plan, carried interest will continue to be taxed at the long-term capital gains rate, which is 16.5 percent in the proposal. Ways and Means Committee members are in accord that it should stay in place, Rep. Kenny Marchant (R-Texas) told Bloomberg BNA Jan. 10 after a members’ meeting on passthrough entity issues.

It wasn’t clear that all members were in agreement, however, and Ways and Means Chairman Kevin Brady (R-Texas) said carried interest, as well as issues including taxation of insurance products, is still “under consideration.” Committee members who support the carried interest break are trying to convince those who think it could be politically risky to support the current tax arrangement, one meeting attendee said, speaking on condition of anonymity to discuss the meeting freely.

President-elect Donald Trump has said he would support taxing carried interest at ordinary tax rates, which would be 25 percent under the Republican plan. His transition team didn’t respond to a request for comment.

Conference Room Club

Lawmakers are planning frequent meetings for the rest of the month to resolve outstanding issues as they put final touches on their plan to overhaul the tax code. Marchant acknowledged that although many details were “cleared up” in the Jan. 10 meeting, there still could be changes in the coming weeks.

Carried interest was one of the few areas of agreement between Trump and Democrats in the presidential election. Opponents of the tax break say that money managers shouldn’t get preferential treatment on the income they earn. Advocates say the provision spurs investment and reflects the risk that fund managers take. Rep. Tom Rice (R-S.C.), who attended the Ways and Means meeting, said he believes that money managers shouldn’t get special tax arrangements.

According to Marchant, it is possible that “when they put this whole thing together, they’ll look at it and say, ‘we need to treat carried interest different and make it subject to ordinary,’ which would raise it up to the 25 percent rate.”

With assistance from Aaron E. Lorenzo in Washington.

To contact the reporter on this story: Laura Davison in Washington at lDavison@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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