Carried Interest Tax Break Targeted in Senate Democrats’ Bill

A group of Senate Democrats are attempting again to kill a tax break enjoyed by investment managers known as carried interest, according to the legislation.

Sens. Sherrod Brown (D-Ohio), Tammy Baldwin (D-Wis.), and Joe Manchin (D-W.Va.) introduced the bill on Monday that would require carried interest income to be taxed at ordinary income rates of up to 40.8% as opposed to the lower 23.8% top capital gains tax rate. Democrats have tried for years to get rid of this tax break. They made the effort most recently when drafting their 2022 tax-and-climate law, but were thwarted by Sen. Kyrsten Sinema (I-Ariz.), who only voted for the law after the provision was removed.

Carried interest is a form of compensation often received by private equity managers that is taxed below top wage income rates.

“This loophole is yet another way wealthy special interests have rigged the system to work for them, at the expense of everyone else,” Brown said in a news release. “Hedge funds and private equity firms shouldn’t pay less taxes than working people in Ohio.”

The legislation is part of a broader effort from Democrats to present a menu of options to tax the rich ahead of the 2025 tax cliff, when much of the GOP 2017 tax law expires.

Brown is up for re-election in November, and is in a tight race. Sinema is leaving the Senate at the end of this term, though it’s unclear which party will control Congress and the White House, leaving the fate of carried interest uncertain. No Republicans have backed the bill to eliminate the tax break.

Senate Finance Chair Ron Wyden (D-Ore.) introduced a bill to end the tax break last year.