U.S. Senator Tammy Baldwin and Senate Democrats Call on McConnell, Reid to Close Carried Interest Loophole
As budget negotiations move forward, Baldwin and colleagues urge Senate leadership to include tax reform in bipartisan budget agreement
Thursday, October 22, 2015
WASHINGTON – Today, U.S. Senator Tammy Baldwin led a group of Senate Democrats in sending a letter to Majority Leader Mitch McConnell and Minority Leader Harry Reid, urging both leaders to include a provision to close the carried interest loophole as part of a bipartisan budget agreement. Senator Baldwin was joined in sending the letter by Senators Jack Reed (D-RI), Al Franken (D-MN), Bernard Sanders (I-VT), Dianne Feinstein (D-CA), Barbara Mikulski (D-MD), Elizabeth Warren (D-MA), and Sheldon Whitehouse (D-RI).
“As we work on a bipartisan budget agreement, Congress has a choice. We can embrace misguided and harmful budget cuts that are stunting economic growth. Or we can work together to repeal the carried interest loophole and use the revenue to invest in an economy that works for everyone, not just the wealthy few. For me, the choice is clear,” said Senator Baldwin.
In June, Senator Baldwin and House Ways and Means Committee Ranking Member Sander Levin (D-MI) introduced the Carried Interest Fairness Act of 2015. The legislation would end the carried interest loophole and ensure that income earned managing other people's money is taxed at the same ordinary income tax rates as that of the vast majority of Americans.
“We are encouraged that negotiations are underway to provide Americans relief from the damaging cuts and budget caps laid out in the Budget Control Act. These indiscriminate cuts were never intended to be permanent policy and we are supportive of efforts to reach a bipartisan budget compromise. As you continue your work to find the revenue and spending cuts required to craft such a deal, we encourage you to consider including a provision to close the carried interest loophole. This long overdue tax change would raise valuable revenue to finance critical investments and prevent damaging sequester cuts,” the senators wrote in today’s letter.
Support for closing the carried interest loophole spans the political spectrum. Led by Americans for Tax Fairness, over 50 national organizations echoed the Senators’ call to eliminate the carried interest loophole saying, “Any budget deal should include raising significant revenues from the wealthy and corporations. Closing the carried interest loophole should be among the first items considered in the ongoing negotiations to prevent the damaging and indiscriminate sequester cuts and to invest in critical programs that support low- and middle-income Americans.”
In September, President Barack Obama called for bipartisan work to repeal the carried interest tax loophole during remarks at a Business Roundtable meeting in Washington, D.C., “Keeping this tax loophole, which leads to folks who are doing very well paying lower rates than their secretaries, is not in any demonstrable way improving our economy.”
Full text of the letter:
October 22, 2015
Dear Majority Leader McConnell and Minority Leader Reid:
We are encouraged that negotiations are underway to provide Americans relief from the damaging cuts and budget caps laid out in the Budget Control Act. These indiscriminate cuts were never intended to be permanent policy and we are supportive of efforts to reach a bipartisan budget compromise. As you continue your work to find the revenue and spending cuts required to craft such a deal, we encourage you to consider including a provision to close the carried interest loophole. This long overdue tax change would raise valuable revenue to finance critical investments and prevent damaging sequester cuts.
Allowing sequester cuts to move forward at this crucial time could do serious harm to the American economy and middle-class families. Closing the carried interest loophole would have a negligible impact on economic output, while taking a significant step towards sequester relief. The Carried Interest Fairness Act (S. 1686) was recently estimated by the Joint Committee on Taxation to raise $15.6 billion in revenue over ten years.
Closing this loophole is also advisable from a tax fairness perspective. The loophole allows investment managers to receive a 50 percent discount on the taxes they pay on their labor income. This allows many of our economy’s highest earners to pay a lower effective tax rate than our nurses, first responders, truck drivers, and teachers. This inequity in the tax code is also a driving force behind rising income inequality in the United States.
As you know, President Obama has been a long-time supporter of closing the carried interest loophole, including it in several of his budget requests. In addition to the President, closing the loophole has been proposed by Republican tax writers and prominent members of the investment management community. With support increasing by the day, we believe that the current budget negotiation is the perfect opportunity to make this long overdue change to our tax code.