Wyden Hires Seen as Taking a Cut at Carried Interest

For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Kaustuv Basu and Aaron E. Lorenzo

July 20 — Sen. Ron Wyden (D-Ore.) seems to be taking a big swing.

The Finance Committee’s ranking member could be aiming for the fences in hiring an outspoken tax professor as part of a tandem top counsel team as Democratic lawmakers set the table for a tax code overhaul in 2017, said a former committee tax counsel.

Wyden tapped Victor Fleischer, a law professor and opponent of the carried-interest tax break for fund managers, as co-chief tax counsel to committee Democrats, along with current staffer Tiffany Smith, according to a July 20 announcement. They will replace Todd Metcalf, who recently announced his departure for PricewaterhouseCoopers LLP.

Fleischer, currently a law professor at the University of San Diego, will challenge old thinking on the committee while Smith will bring a tactical background, having worked for the panel since 2007, said Dean Zerbe, a former senior counsel to committee Republicans who likened Wyden's personnel decisions to going for a home run.

“Having them in harness together is a very smart thing for Sen. Wyden to do,” Zerbe said.

“This is definitely not a safe pick that everyone downtown will be nodding their heads in agreement about,” Zerbe, national managing director of Alliantgroup LLP, said of Fleischer’s hiring. “This is going to shake things up and that’s great.”

Fleischer will start his new position Oct. 11, while Smith, who formerly served as senior tax counsel, has already stepped into her new role. Neither was available for comment.

Working in Tandem

Fleischer, whose seminal 2008 paper “Two and Twenty: Taxing Partnership Profits in Private Equity Funds” focused attention on the carried interest tax break, will be willing to make arguments or take part in discussions that might not fit so well within the party line, Zerbe said (206 DTR J-1, 10/26/15).

“He is capable of fresh and new thinking, and really pushing hard on what is possible,” Zerbe said.

Lily Batchelder, a professor at the New York University School of Law who held the tax counsel position under former Chairman Max Baucus (D-Mont.) from 2010 to 2014, called Fleischer a creative thinker “very familiar with sweeping reform options.”

Smith, who used to work for the Internal Revenue Service, is a detail-oriented, technical-minded person who understands the political, policy and administrative problems that can arise with proposals, Batchelder said.

A tax lobbyist said that having two people in charge was unusual.

“Having two people doing this is an awkward arrangement. I guess this is an attempt to fulfill multiple needs,” the lobbyist said. “What is also unusual is the extent to which Fleischer has been out in front on issues. He has written extensively opinionated stuff on carried interest. This is an unusual position for a committee staff person to be in.”

End of the Road?

Both presidential candidates have talked about closing the carried interest tax break, and Fleischer’s new assignment could be another sign of renewed debate on the issue.

News of Fleischer’s hiring comes even as a group of millionaires plan to reach out to every member of the Senate and House this summer to make their case against the tax break (122 DTR G-5, 6/24/16).

The Joint Committee on Taxation has estimated that taxing income earned as a share of investment fund profits the same way as ordinary income will raise $15 billion in revenue over 10 years, although some Democratic lawmakers have said they think the revenue gain could be higher.

With assistance from Laura Davison in Washington.

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bna.com and Aaron E. Lorenzo in Washington at aaron@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Daily Tax Report