Pascrell, Baldwin Move to Close Infamous Tax Loophole Favored by One Percent
Washington, March 13, 2019
WASHINGTON, D.C. – Today, U.S. Rep. Bill Pascrell, Jr. (D-NJ-09), a member of the tax-writing House Ways and Means Committee, and Sen. Tammy Baldwin (D-WI) unveiled the Carried Interest Fairness Act of 2019, legislation to close one of the most egregious loopholes in the federal tax code. In the House, the bill is also cosponsored by Reps. Andy Levin (D-MI-09) and Max Rose (D-NY-11).
“Certain wealthy taxpayers should not have their own parallel tax code of special breaks and deductions. Our system always been based on the principle that we ask more from those who have more, but today private-equity investors can pay a lower tax rate than their secretaries. Building on the work of my esteemed former colleague Sandy Levin, this new Congress will fight to put fairness back at the center of our nation’s tax policy,” said Rep. Pascrell. “Millions of Americans filing their taxes are finding that the refunds they anticipated will not materialize this year. They and many other Americans are rightly outraged at a tax code that is badly skewed to favor some of our wealthiest citizens and corporations.”
“President Trump broke his promise to close the carried interest tax loophole that benefits money managers on Wall Street and the top 1%,” said Sen. Baldwin. “I want to see loopholes closed – like the one that favors Wall Street hedge funds and allows them to pay a lower tax rate than many Wisconsin workers. It’s simply unfair for our workers to pay a higher tax rate than a millionaire on Wall Street, so President Trump needs to stand by his word, support our legislation and finally close the carried interest tax loophole for Wall Street.”
“The fact that hedge fund billionaires pay a lower tax rate than cops, firefighters, and teachers is the epitome of how working people have been ripped off and looked over for decades,” said Rep. Rose. “It’s past time to close the carried interest loophole to not only make the wealthiest pay their fair share, but to finally bring some justice to our working class and small businesses.”
“Closing the carried interest loophole is a bipartisan no-brainer that even President Trump supported during his campaign,” said Rep. Levin. “It’s absurd that a wealthy group of taxpayers gets to follow a separate set of rules and pay less in taxes than teachers and small business owners. Closing loopholes like carried interest is how we start to curb rampant income inequality and level the playing field for working families. I’m proud to continue the legacy of my father and fight for fairness in the tax code.”
"Most of us believe that hard work should be rewarded fairly. But greedy financial executives have spent millions on a loophole that allows them to pay a lower tax rate than teachers and nurses," said Porter McConnell of the Take On Wall Street campaign. "We commend Senator Baldwin and Representative Pascrell for leading the charge to eliminate the carried interest loophole and tax money managers the same as everybody else. Our tax system -- and our democracy -- depend on it."
“For years, the carried interest tax loophole has allowed some of the wealthiest people in this country to pay a lower tax rate than millions of middle-income workers,” said Chris Shelton, President of the Communications Workers of America (CWA). “Meanwhile, our country's infrastructure is crumbling, our young people struggle to pay college tuition, and critical programs like Social Security and Medicare are constantly under threat. It’s time to close the carried interest loophole and make Wall Street pay its fair share.”
“The Carried Interest Fairness Act will help correct an economic injustice that gives massive tax breaks to the extremely rich and powerful at the expense of everyone else,” said Lee Saunders, President, American Federation of State, County and Municipal Employees. “Millionaire and billionaire hedge fund managers are getting away with paying a significantly reduced tax rate on the so-called “carried interest” income they receive from other people’s investments. It’s unconscionable that working families pay more because of loopholes designed to benefit the wealthy and well-connected. It’s time to unrig the economy and insist that everyone pay their fair share. AFSCME thanks Senator Baldwin and Representative Pascrell for their leadership and urge other members of Congress to stand with working families and support this legislation.”
“The carried interest loophole is a big wet kiss for Wall Street fat cats but a slap in the face to the rest of us. The bill by Senator Baldwin and Congressman Pascrell eliminates this outrageous sweetheart deal and restores a measure of fairness to our rigged tax system. The $14 billion that will be raised by closing this egregious tax loophole could hire more than 230,000 teachers for a year,” said Frank Clemente, Executive Director, Americans for Tax Fairness.
The Pascrell-Baldwin Carried Fairness Act is supported by AFL-CIO, The Agenda Project, American Family Voices, American Federation of Government Employees, American Federation of State County and Municipal Employees, American Federation of Teachers, American Postal Workers Union, Americans for Financial Reform, Catholics in Alliance for the Common Good, Center for Popular Democracy Action, Communications Workers of America, Consumer Action, Courage Campaign, Credo, Democracy for America, Economic Policy Institute, Franciscan Action Network, Friends of the Earth, Hedge Clippers, Institute for Policy Studies, Media Voices for Children, MoveOn.org, National Education Association, NETWORK, The Other 98%, Patriotic Millionaires, People's Action Institute, Presente.org, Public Citizen, Service Employees International Union, Strong Economy for All Coalition, The Rootstrikers at Demand Progress, UNITE-HERE, U.S. Public Interest Research Group, United Auto Workers, Working America, the Working Families Party and Americans for Tax Fairness.
First enshrined into law in 1954, the carried interest exception was originally designed to help certain subsets of workers in speculative industries like oil and gas drilling, but has since grown to become a loophole used primarily in the financial services industry. Today, the largest beneficiaries of carried interest are private-equity partners and real estate investment firms, who use the loophole to avoid paying income taxes on compensation earned from managing other people’s money. Bankers in these sectors do not typically build ventures from the group up and incur little of the risk the exemption was created to reward. Instead, private-equity firms seek to acquire companies with the intent of cutting costs before selling them at a profit, sometimes at the cost of cannibalizing businesses and eliminating jobs. The carried interest loophole allows these Wall Street firms to pay the lower capital gains rate on their lucrative income (15 or 20%), rather than paying ordinary income rates (up to 37%) that all other Americans pay on their earnings from work.
The ability of private-equity and hedge fund financiers to use the loophole impacts income inequality, as this tiny subset of executives make up some of the wealthiest citizens in the world. Indeed, since the recession, private equity has reaped historic profits, and at least 18 private equity executives are estimated to be worth two billion dollars or more each.
The Pascrell-Baldwin Carried Interest Fairness Act would close this loophole by taxing carried interest compensation at ordinary income tax rates and treating it as wage income subject to employment taxes. The capital-gains break would still apply for those who truly put money at risk, such as private-equity partners who invest their own money in their funds. But all income from managing a firm’s assets would be taxed at ordinary rates. The Congressional Budget Office has estimated that closing the loophole will return $14 billion to American taxpayers over ten years, while experts have suggested it could bring in more than ten times as much to the Treasury.
Eliminating this loophole has garnered bipartisan support. During the 2016 presidential election, the carried interest loophole was a target of Republican and Democratic candidates alike. Donald Trump included closing the carried interest tax loophole in his campaign tax reform plan and spoke about it extensively, stating, "We will eliminate the carried interest deduction and other special interest loopholes that have been so good for Wall Street investors, and for people like me, but unfair to American workers." Yet Trump’s Tax Cuts and Jobs Act “failed to eliminate [the] key deduction used by wealthy investment firms that Trump had vowed to kill,” leading PolitiFact to rate this a “Promise Broken.”
The House legislation is cosponsored by Reps. Don Beyer (D-VA-08), Rosa DeLauro (D-CT-03), Raul Grijalva (D-AZ-03), Jan Schakowsky (D-IL-09), Tom Suozzi (D-NY-03), Barbara Lee (D-CA-13), Tim Ryan (D-OH-13), Ro Khanna (D-CA-17), Alexandria Ocasio-Cortez (D-NY-14), Steve Cohen (D-TN-09), Mark Pocan (D-WI-02), John Garamendi (D-CA-03), Jerrold Nadler (D-NY-10), Brian Higgins (D-NY-26), Earl Blumenauer (D-OR-03), Frank Pallone (D-NJ-06), and Gwen Moore (D-WI-04).
The companion Senate legislation is cosponsored by Sens. Elizabeth Warren (D-MA), Jeff Merkley (D-OR), Tammy Duckworth (D-IL), Tim Kaine (D-VA), Jack Reed (D-RI), Richard Blumenthal (D-CT), Kirsten Gillibrand (D-NY), Sheldon Whitehouse (D-RI), Dianne Feinstein (D-CA), Chris Van Hollen (D-MD), and Amy Klobuchar (D-MN).