ONE OF THE MOST HATED TAX BREAKS IN AMERICA
June 12, 2019 - Douglas Myser
One of the most hated tax breaks in america. One of private equity and hedge fund managers most prized tax breaks is again in politicians cross hairs, but Democrats would need to sweep the 2020 elpection if they want to pull the trigger to end the option. President Donald Trump said in may that he wanted to increase taxes on carried interest, a major form of compensation for hedge fund and private equity managers. Several leading Democratic presidential contenders, including former Vice President Joe Biden and Sens. Bernie Sanders and Elizabeth War also have said they want to end the break. Yet there are a couple of reasons the carried interest tax break, despite bipartisan support, isn't dead yet. Most Republicans, and even some Democrats, oppose killing a tax option that investment firms have successfully argued creates jobs. And eliminating the break wouldn't actually raise all that much money. One of the most hated tax breaks in america.
Partnerships, such as private equity, venture capital and hedge funds typically get compensated in two ways. They charge an annual management fee, as well as a performance fee, which can be about 20% of gains, depending on the fund. For tax purposes, the performance fee is treated as a capital gain, meaning that it gets hit by a top rate of 23.8%, rather than ordinary income, were rates can reach as high as 37%. Various proposals to tax carried interest as ordinary income have been estimated to raise between $3 billion and $16 billion over a decade, depending on the particulars of each plan. That's a drop in the bucket for federal spending, meaning that it has limited value as a money raiser.
"As a political scalp, it's still something very hot for Democrats, but no Republicans are going to vote for a tax increase," said Stephen Myrow, managing partner of Beacon Policy Advisors in Washington. "It's an uphill battle unless Democrats control everything." The preferred tax treatment is a frequent target on the campaign trail as a way to pay for other priorities. Democratic candidate Amy Klobuchar, a Minnesota senator, said in a CNBC interview in May that eliminating the loophole could help pay for infrastructure. If you have been hit by unexpected taxes and have a IRS Tax Debt, you have options in the Internal Revenue Code for dealing with tax debts. This 35 year old Tax Resolution Services firm can determine every option you have, including the IRS Fresh Start Program.