The Carried Interest Loophole Survives Another Political Battle | Big Indy News
Connect with us

News

The Carried Interest Loophole Survives Another Political Battle

Published

on

WASHINGTON — Once again, carried interest carried the day.

The last-minute removal by Senate Democrats of a provision in the climate and tax legislation that would narrow what is often referred to as the “carried interest loophole” represents the latest win for the private equity and hedge fund industries. For years, those businesses have successfully lobbied to kill bills that aimed to end or limit a quirk in the tax code that allows executives to pay lower tax rates than many of their salaried employees.

In recent weeks, it appeared that the benefit could be scaled back, but a last-minute intervention by Senator Kyrsten Sinema, the Arizona Democrat, eliminated what would have been a $14 billion tax increase targeting private equity.

Lawmakers’ inability to address a tax break that Democrats and some Republicans have called unfair underscores the influence of lobbyists for the finance industry and how difficult it can be to change the tax code.

In addition to doing away with the carried interest provision, the deal Democratic leaders cut with Ms. Sinema included a 1 percent excise tax on stock buybacks and changes to a minimum corporate tax of 15 percent that favored manufacturers.

On Friday, the private equity and hedge fund industries applauded the development, describing it as a win for small business.

“The private equity industry directly employs over 11 million Americans, fuels thousands of small businesses and delivers the strongest returns for pensions,” said Drew Maloney, the chief executive of the American Investment Council, a lobbying group. “We encourage Congress to continue to support private capital investment in every state across our country.”

Bryan Corbett, the chief executive of the Managed Funds Association, said: “We’re happy to see that there is bipartisan recognition of the role that private capital plays in growing businesses and the economy.”

Carried interest is the percentage of an investment’s gains that a private equity partner or hedge fund manager takes as compensation. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.

Under existing law, that money is taxed at a capital-gains rate of 20 percent for top earners. That’s about half the rate of the top individual income tax bracket, which is 37 percent. A tax law passed by Republicans in 2017 largely left the treatment of carried interest intact, after an intense lobbying campaign, but it did narrow the exemption by requiring executives to hold their investments for at least three years in order to enjoy preferential tax treatment.

An agreement reached last week by Senator Joe Manchin III, Democrat of West Virginia, and Senator Chuck Schumer of New York, the majority leader, would have extended that holding period to five years from three, while changing the way the period is calculated in hopes of reducing taxpayers’ ability to take advantage of the lower 20 percent tax rate.

But Ms. Sinema, who has received political donations from wealthy financiers who usually donate to Republicans and who was cool to the idea of targeting carried interest last year, objected.

In the past five years, the senator has received $2.2 million in campaign contributions from investment industry executives and political action committees, according to OpenSecrets, a nonprofit group that tracks money in politics. The industry was second only to retired individuals in giving to Ms. Sinema and just ahead of the legal profession, which gave her $1.8 million.

For years, carried interest has been a tax policy piñata that never cracks open.

During the 2016 presidential campaign, Donald J. Trump said, “We will eliminate the carried interest deduction, well-known 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.”

When President Biden ran for president in 2020, his campaign said he would “eliminate special tax breaks that reward special interests and get rid of the capital gains loophole for multimillionaires.” To do that, he said, he would tax long-term capital gains at the ordinary top income tax rate, essentially wiping away the special treatment of carried interest.

A similar proposal appeared in Mr. Biden’s budget last spring, but, as Democrats tried unsuccessfully to pass their Build Back Better legislation in the summer and fall, carried interest disappeared.

Jared Bernstein, a member of the White House’s Council of Economic Advisers, lamented that outcome. “This is a loophole that absolutely should be closed,” Mr. Bernstein told CNBC last September. “When you go up to Capitol Hill and you start negotiating on taxes, there are more lobbyists in this town on taxes than there are members of Congress.”

Ms. Sinema has long been a defender of the private equity industry, going back to her time in the House. In recent weeks, representatives from small business, venture capital and the renewable energy sector blanketed Ms. Sinema and her staff with information about their presence in and importance to Arizona, according to a lobbyist familiar with the effort.

“Senator Sinema makes every decision based on one criteria: what’s best for Arizona,” said her spokeswoman, Hannah Hurley.

The American Investment Council said that venture capital and private equity firms invested $67 billion in Arizona from 2016 to 2020, and that businesses backed by private equity employ nearly 230,000 workers in the state. Several prominent private equity firms, like Blackstone, KKR and Warburg Pincus own businesses in the state.

Executives of some of those firms have made campaign contributions to Ms. Sinema, including George Roberts, Henry Kravis and Joseph Bae at KKR and Sean Klimczak and Eli Nagler at Blackstone.

Opinions on the carried interest tax treatment vary even within the financial industry. In posts on Twitter in late July, Bill Ackman, the founder of Pershing Square Capital Management, a New York hedge fund, said that while “favorable tax treatment” for the founders of new businesses was essential, people who manage funds that own many companies should not be entitled to the same benefit.

“The carried interest loophole is a stain on the tax code,” he wrote in one post. “It does not help small businesses, pension funds, other investors in hedge funds or private equity and everyone in the industry knows it. It is an embarrassment and it should end now.”

Some analysts were skeptical all along that lawmakers would actually change the carried interest tax treatment in the final bill. While it has become a high-profile target, the change Democrats were seeking would have raised little tax revenue compared with other provisions in the legislation, known as the Inflation Reduction Act.

“Carried interest has become the MacGuffin of the I.R.A. saga,” said James Lucier, an analyst at Capital Alpha Partners, a policy research firm in Washington, describing it as a literary device that authors include merely to make plots more interesting. “The MacGuffin distracted attention from the really important things going on in the story to make the startling conclusion even more surprising in the end.”

On Friday, some progressive policy experts shrugged off the elimination of the carried interest provision, which they considered only a modest improvement over current law.

“The proposal that was in the bill until last night made a technical adjustment in the holding period for assets that qualified for carried interest treatment,” said Jean Ross, a senior fellow at the Center for American Progress, a liberal research group in Washington. “A better approach would tackle the issue head-on and say that compensation for services managing an investment fund should be taxed like work and subject to ordinary tax rates.”

Ms. Ross added that she was pleased by the addition of the tax on stock buybacks, which some Democrats and their allies have long supported, arguing that companies are spending too much money buying back their own shares, rather than investing in research and development or giving workers raises.

Ms. Sinema herself has said little about the legislation or about why she considered it so important to preserve the carried interest tax treatment.

“We have agreed to remove the carried interest tax provision, protect advanced manufacturing and boost our clean energy economy in the Senate’s budget reconciliation legislation,” she said in a statement on Thursday.

Emily Cochrane contributed reporting.



Read the full article here

News

As Ukraine Presses Its Offensive, a Call for Evacuations From a Russian-Controlled Area

Published

on

KYIV, Ukraine — Less than a month after driving Russian forces from the city of Kherson on the west bank of the Dnipro River, the Ukrainian authorities on Saturday issued an urgent call for civilians to evacuate from Russian-occupied areas on the eastern bank, suggesting that Kyiv’s military might press its offensive and try to establish a foothold across the waterway.

“The evacuation is necessary due to the possible intensification of hostilities in this area,” Yaroslav Yanushevych, the head of the Kherson regional military administration, in Ukraine’s south, said in an announcement to residents.

It was not clear how many people would be able to make it across the river on private boats and other vessels because all of the main crossings have been destroyed. The public call for evacuations was also most likely intended to signal to the Russians that an assault might be coming, though Ukraine has in the past used deception to focus Russian attention in one direction while preparing for an offensive somewhere else.

Ukrainian forces are pushing on into the winter after two sweeping offensives in the northeast and south in the fall. They are once again stepping up strikes on Russian supply routes, command centers and ammunition depots from new forward positions.

The Russian withdrawal from Kherson was both an embarrassment for the Kremlin, which had only recently declared the region to be a part of Russia, and a strategic setback as it put the Ukrainians in a better position to threaten supply lines from Crimea with long-range precision weapons provided by its Western allies.

After being driven across the Dnipro River in Kherson, Russian forces set about fortifying defensive positions about 10 to 20 miles from the eastern bank, according to the Ukrainian military and satellite imagery. But the river divides Ukrainian and Russian forces along a route that stretches more than 200 miles, and Russian forces are spread thin.

“Russian forces clearly do not expect to be able to prevent Ukrainian forces from getting across the river, nor are the Russians prioritizing defensive positions to stop such a crossing,” the Institute for the Study of War, a Washington-based research group, said earlier this week after analyzing publicly available satellite photos of the Russian defensive positions.

A ban on river crossings would be lifted from Saturday to Monday to facilitate the evacuations, Mr. Yanushevych said, noting that only one dock would be opened. All those fleeing Russian-occupied territories must bring documents certifying their identity and confirming their Ukrainian citizenship, he said.

Farther to the northeast, where the river widens into a vast reservoir held back by a vital dam in Nova Kakhovka, Ukrainian officials and residents said that the Russian civilian administration this week had begun to flee farther east.

The Ukrainian military has noted that it was seeing a decrease in the number of Russian troops in the towns and villages along the river. “A minimal number of occupiers remain in the cities,” the military said last month.

The account was supported by local residents reached by telephone in recent days.

North of the dam, speculation continued to swirl around Russian intentions at the Zaporizhzhia Nuclear Power Plant, which has been occupied by Russian forces since early in the war and where Ukrainian intelligence has estimated at least 500 soldiers are garrisoned.

Rafael Mariano Grossi, the head of the International Atomic Energy Agency, said at a news conference in Rome on Friday that the agency was “almost there” in brokering a deal for Russian troops to pull out of the plant and to create a demilitarized zone around the facility, which has been at the center of frequent shelling.

“We have a proposal on the table which simply put is aiming to stop the folly of bombing the largest nuclear power plant in Europe,” he said.

Although the Kremlin has pushed back on Ukrainian suggestions that its forces were preparing to leave the nuclear plant, Alexei Likhachev, the head of the Russian nuclear energy agency, confirmed negotiations with the International Atomic Energy Agency, the United Nations’ nuclear watchdog group, were continuing.

Read the full article here

Continue Reading

News

Georgia fugitive gets himself arrested after commenting on ‘most wanted’ post

Published

on

This is not a list most would ask to be on.

A Georgia man assisted law enforcement in his arrest after he commented on the Rockdale County Sheriff’s Office’s Facebook page.

When the sheriff’s department, located east of Atlanta, released their “Most Wanted List” for November, Christopher Spaulding appeared offended by the omission.

“How about me” Spaulding asked through his personal Facebook account.

The department was happy to reply on Thursday, saying, “you are correct you have two warrants, we are on the way.” 

Later on Thursday, Rockdale police shared an update to the bizarre exchange. Spaulding, wearing a red Georgia Bulldogs hoodie and hat, was apprehended and handcuffed.

The 40-year-old had two warrants for Felony Violation of Probation, according to police.

The Rockdale County Sheriff’s Office was happy to add Spaulding to the list.
Rockdale County Sheriff’s Office / Facebook

“We appreciate you for your assistance in your capture!” the department said in the post.

After Spaulding was taken into custody, the Rockdale County Sheriff’s Office reminded wanted fugitives that being left off the “Most Wanted List” isn’t a get-out-of-jail-free card.

“Our Top 10 is compiled based off of the severity of the charges only. By not being on this list does not mean our Fugitive Unit is not looking for you if you have an active warrant.”

Read the full article here

Continue Reading

News

Your Holiday Rituals

Published

on

“Our holiday ritual involves stretching buñuelos over cheesecloth on our bent knee. We use a secret family recipe that my older sister has yet to share. Everyone is involved in an assembly line according to expertise, mixing, forming testales, rolling out perfectly round tortillas, stretching, then frying to a golden color!” — Elma Cadena, San Antonio, Texas

“My family and I burn a yule log on the winter solstice. We find a weirdly shaped or very large hunk of wood, decorate it with twigs, berries, foliage and other items as we see fit, then we fasten a note or make a marking on the log indicating some intention we have for the coming year.” — Candace Abraham, Newport, Wash.

“I carry around one $100 bill to tip someone randomly. I go about my business and when I find that person who needs a pick-me-up, I plant the big bill as I normally would: in the hand of the hair dresser, jar at coffee shop, billfold for server. And don’t stick around for the reaction. Let them enjoy their surprise privately!” — Jackie Shapiro Brooker, Greenville, S.C.

“My husband’s family’s 20-plus-year tradition of a Christmas Eve dinner we call ‘mishy mashy.’ There is one rule: Every person must bring or make one food item that they want to eat. Anything is game, and no judgment allowed. Soft pretzels? Yum! Oyster soup? OK! Cheese shaped like reindeer that you just bought? Looks good!” — Jen Bowerman, Traverse City, Mich.

“When I was in my early 20s, we lost my 22-year-old brother to cancer just before Christmas. As a means of coping, my mom and I took a class where we constructed a gingerbread house completely from scratch. Over 40 years later, I continue to make one every Christmas season with my daughters.” — Beth Q. Reynolds, Hopkinton, Mass.

Read the full article here

Continue Reading
Advertisement

Newsletter

Subscribe to our newsletter to get the latest news directly to your inbox.


Trending