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By Kaustuv Basu
June 23 — A group of millionaires who want to close off the carried interest tax advantage available to fund managers will reach out to every member of the Senate and the House this summer as they press their case.
Morris Pearl, chairman of the Patriotic Millionaires, a bipartisan group of about 200 millionaires, said June 23 at a Capitol Hill news event that Americans should know where their elected officials stand on the matter. “We will detail the positions of each and every one of them, each and every member of the House and Senate in closing the loophole, and we will publicize the report widely,” said Pearl, a former managing director of investment firm BlackRock Inc.
A senior Internal Revenue Service official said recently that the agency wouldn't try to change the carried interest rules but would wait for Congress to act. Clifford Warren, special counsel to the associate chief counsel (Passthroughs and Special Industries) at the IRS, said “there is a sense we may be treading on congressional territory if we try to go that route” (111 DTR G-8, 6/9/16).
Democratic presidential candidate Hillary Clinton and Republican candidate Donald Trump have both said recently that they would direct the Treasury Department to close off the tax advantage if elected president.
House Ways and Means ranking member Sander Levin (D-Mich.) and Sen. Tammy Baldwin (D-Wis.), both of whom spoke at the event, introduced a bill in 2015 (H.R. 2889, S. 1686) that would change the carried interest rules to ensure that income earned as a share of investment fund profits is taxed at the same rate as ordinary income (123 DTR G-6, 6/26/15).
Current rules enable fund managers to pay capital gains rates on their profits, instead of paying ordinary, higher rates.
Efforts to change carried interest rules have foundered in Congress in the last decade.
But Levin believes that momentum for change is building.
“We grabbed a hold of an issue that so illustrates what tax reform should be all about,” Levin said.
When asked what it will take for Congress to change the rules, he said “the main challenge is to really get a few leading Republicans in the Senate and the House to join. I think there is more and more pressure to make it happen.”
Baldwin said a Joint Committee on Taxation report on the carried interest bill estimated the measure would raise $15 billion in revenue over 10 years.
“We can reward the wealthy with tax preferences or we can work together to repeal the carried interest loophole and use the revenue to invest in an economy that works for everyone,” Baldwin said.
Levin’s bill and its Senate companion measure currently have no Republican co-sponsors.
Art Lipson, a hedge fund manager who spoke at the event, said “this bill stands a better than average chance of being enacted on because it is a stand-alone bill.”
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