Proposed end of carried interest would mean tax hike for rich Wall Streeters

Proposed end of carried interest would mean tax hike for rich Wall Streeters
  • July 28, 2022

From InvestmentNews, by Bloomberg News

The tax deal in the Senate would eliminate the tax break used by private equity and hedge fund managers.

Wealthy Americans, who were girding for the biggest set of tax increases in three decades just a year ago, now look mostly safe from higher levies for years to come.

But there’s one big, glaring exception: investment fund managers. If Democrats succeed in passing Wednesday’s surprise fiscal deal between Senate Majority Leader Chuck Schumer and Sen. Joe Manchin of West Virginia, the carried interest tax break will end — eliminating a benefit used by private equity and hedge fund managers.

Only a few items from President Joe Biden’s set of ambitious, wide-ranging tax increases are still alive in the Senate. In the 50-50 chamber, Manchin has made clear he’s only willing to proceed with three tax measures: ending carried interest, increasing Internal Revenue Service audits on businesses and wealthy households, and imposing a 15% minimum levy on corporate profits.

The American Investment Council, which represents the private equity industry in Washington, immediately attacked the plan.

“Over 74% of private equity investment went to small businesses last year,” Drew Maloney, the group’s president, said in a statement. “As small business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”

The proposal to single out carried interest as the sole tax increase on high earners is rooted in Democrats’ longstanding disdain for a tax preference that lets fund managers pay much lower capital gains rates on much of their income. Sen. Kyrsten Sinema, an Arizona Democrat whose vote is also crucial to the plan’s passage, has in the past declined to support ending that tax break. A spokeswoman for Sinema said she has yet to make a decision on the proposal.

Most rich Americans can largely thank inflation for allowing them to escape bigger payments to the IRS. Manchin has tied his opposition to tax increases on most individuals and small business profits to the surge in consumer prices, which he has argued could be worsened by Biden’s long-term economic plan. At the same time, Republicans are using inflation as a key theme in their midterm election campaign, which could see them take control of Congress, removing the possibility of more expansive tax hikes.

“There is clearly a sense of relief from most people who are earning near or over the thresholds proposed in the various tax plans,” said Ken Eyler, chief executive officer at financial advising firm Aquilance…