WASHINGTON — Again, the interest rate ran that day.
Senate Democrats’ last-minute removal of a climate and tax law provision that narrows what is widely referred to as the “carried interest loophole” represents the latest victory for the private equity and hedge fund industries. increase. For years, these companies have lobbied to repeal legislation aimed at ending or limiting tax law quirks that allow wealthy business owners to pay lower rates than many salaried workers. I have been active.
In recent weeks, it looked like it could squeeze profits, but a last-minute intervention by Arizona Democratic Senator Kirsten Sinema eliminated a $14 billion tax increase targeted at private equity.
Congress’ failure to address tax incentives that Democrats and some Republicans say are unfair is a reflection of the political power lobbyists wield for the financial industry and the unfairness of members of both parties. It highlights how difficult it is to change the so-called tax law.
In addition to eliminating the carry-forward clause, the deal Democratic leaders struck with Mr. Cinema included a 1% excise tax on share buybacks and a change to a 15% minimum corporate tax in favor of manufacturers. was
On Friday, the private equity and hedge fund industry applauded the development, calling it a win for small businesses.
“The private equity industry directly employs more than 11 million Americans and fuels thousands of small businesses,” said Drew Maloney, CEO of lobbying group the American Investment Council. “We encourage Congress to continue to support private capital investment in every state across the country.”
Bryan Corbett, Chief Executive Officer of the Managed Funds Association, said:
Carried Interest is the percentage of investment income received as compensation by a private equity partner or hedge fund manager. In most private equity firms and hedge funds, the percentage of profits paid to the manager is around 20%.
Under existing law, that money is taxed on top earners at a 20% capital gains tax rate. This is about half of the higher personal income tax rate of 37%. The 2017 tax law, passed by Republicans, left the effective interest treatment largely intact after heavy lobbying, but by requiring executives to hold their investments for at least three years to enjoy preferential tax treatment. narrowed the exemption.
The deal reached last week by West Virginia Democratic Senator Joe Manchin III and Senator Majority Leader Chuck Schumer extends the holding period from three to five years, while hopes to reduce taxpayers. was to change the way the period is calculated. Ability to operate the system and pay the low 20% tax rate.
But Cinema, who collects political donations from wealthy investors who usually donate to Republicans, coolly opposed the idea of targeting last year’s net interest.
In the last five years, senators have $2.2 million in campaign contributions from investment industry executives and political action committeesaccording to Open Secrets.
For years, Carried Interest was a tax policy piñata that was never opened.
During the 2016 presidential election, Donald J. Trump said: Worker. “
When President Biden runs for president in 2020, his campaign said He said he would “eliminate special tax cuts that reward extra interest and remove loopholes for billionaire capital gains.” To do that, he said, he would tax long-term capital gains at the normal top income tax rate, essentially wiping out any special treatment of interest that was carried out.
A similar proposal was in Mr. Biden’s budget last spring, but Carey’s interest faded as Democrats unsuccessfully tried to pass a “build better” bill this summer and fall.
Jared Bernstein, a member of the White House Economic Advisory Board, lamented that the lobbyists had won.
“This is a loophole that absolutely needs to be closed,” Bernstein said. told CNBC last September“When you go to the Capitol and start negotiating taxes, there are more lobbyists in this town than there are members of Congress.”
In general, there is a close relationship between Democrats and the private equity industry. Attorney Michael Shapiro, who is married to Mr. Schumer’s daughter, recently left the Department of Transportation to join investment giant Blackstone in June as director of government relations.
“Senator Schumer has long been a champion of closing the Carrie Interest loophole, and there is no question he supports doing so,” said Justin Goodman, a spokesman for Mr. Schumer. Stated. “He will work to the end to preserve the provisions of the law and will continue to look for opportunities to repeal it.”
Blackstone spokesman Matt Anderson said Shapiro “does not engage in any defense in front of the majority leader or his office related to Blackstone business.”
Some analysts were skeptical that lawmakers would actually change the treatment of the accelerated interest tax in the final bill. Although it has become a high-profile target, the changes Democrats have been seeking would yield relatively little tax revenue compared to other provisions of the law known as the Inflation Reduction Act.
“Carrie Interest became a MacGuffin James Russier, an analyst at Capital Alpha Partners, a Washington policy research firm, explains that this is simply a literary device the author has put in to make the plot more interesting. It took our attention away from what was really important going on in the story, making the final surprising conclusion all the more surprising.”
Cinema himself said little about the law, or why he thought it was so important to maintain the treatment of deferred interest taxes.
“We agreed in the Senate Budget Reconciliation Act to remove carry interest tax provisions, protect advanced manufacturing and boost the clean energy economy,” she said in a statement Thursday. .
