Washington Democrats may have found an unlikely ally in their bid to end a longstanding tax rule enjoyed by some of Wall Street’s wealthiest executives: Hedge fund billionaire Bill Ackman.
The Pershing Square Capital founder on Thursday accessed the so-called “carrying interest loophole” — a tax treatment that allows private equity and hedge fund managers to pay a reduced tax rate on their share of the funds’ investment profits.
“The carried interest loophole is a stain on the tax code,” Ackman said in a tweet. “It doesn’t help small businesses, pension funds, other hedge funds or private equity investors, and everyone in the industry knows that.”
“It’s a shame and it should stop now.”
Ackman’s tweets come after Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) agreed this week on sweeping tax legislation targeting Democrats’ interest tax preference, among other things. For 15 years they have campaigned for termination as part of efforts to reform tax laws.
Current tax rules allow an Investment Manager’s portion of its income, if held for more than three years, to be classified as a capital gain, which is taxed at around 20%, rather than the maximum rate of 37% on ordinary wage income.
Critics argue that treating interest carryforward as ordinary compensation allows wealthy Americans to unfairly defer and reduce the taxes they pay, while proponents say it encourages long-term investment.
Senate Majority Leader Chuck Schumer (D-NY) speaks to reporters after the Senate Democrats’ weekly political luncheon at the U.S. Capitol in Washington, U.S. July 19, 2022. REUTERS/Elizabeth Frantz
“Over 74% of private equity investments last year went to small companies,” said Drew Maloney, president and CEO of the American Investment Council, in a statement. a new private equity tax that will help local employers survive and thrive.”
Senate Democrats estimate the deal, if approved, would tax the carried interest as regular income and generate $14 billion in revenue over the next decade.
The story goes on
The latest target of Wall Street’s preferred tax rule comes after a separate bill proposed last year to end tax breaks, the Interest Carryforward Fairness Act, failed to pass.
Other ultra-rich advocates of changing the rules to make private equity and hedge fund managers pay higher taxes include Berkshire Hathaway CEO Warren Buffett.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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