Top Finance Democrat offers bill to end tax ‘loophole’ Trump pledged to eliminate

Senate Finance Committee ranking member Ron Wyden (D-Ore.) on Thursday introduced a bill that would end tax benefits for investment fund managers’ carried interest, a move that comes shortly after President Trump reiterated his desire to so.

“If President Trump wants to address carried interest and make the tax code more fair, he’ll be happy to support my new proposal that would fully close the loophole—existing bills only address half the problem,” Wyden said in a statement.

{mosads}Carried interest is compensation that hedge fund and private equity managers receive in the form of future profits in a partnership.

Under current law, taxes on carried interest are deferred until the partnership realizes income, through actions like selling an investment. Carried interest is generally taxed at capital gains rates rather than the higher ordinary income rates.

Wyden’s bill would have fund managers pay taxes annually on a certain compensation amount. That amount would be taxed at ordinary income rates and subject to self-employment taxes, according to a fact sheet from the senator’s office.

The leader of a trade group representing the private-equity industry criticized the bill.

Democrats have long been interested in ending carried-interest tax benefits. Previously introduced bills aimed to re-characterize carried interest as ordinary income but did not address the deferral issue. Democrats view the tax preference for carried interest as a loophole that allows wealthy people to pay less in taxes than middle-class workers.

When he was a presidential candidate, Trump said he wanted to eliminate the carried interest tax break. The tax-cut law he signed in 2017 did not include a provision to eliminate that break.

Trump said in a recent Fox News interview that he would still like to eliminate the carried interest tax break. Treasury Secretary Steven Mnuchin told reporters after a congressional hearing Wednesday that such a change would require legislation and could be considered if Congress moves a bill making technical fixes to the tax code.