Carried interest is a tax code that benefits equity managers but also partnerships that own commercial real estate, and it has remained in effect since 1954. The tax code is beginning to see continued efforts to abolish what some people consider to be a loophole.
“Under the Carried Interest Fairness Act of 2021, the share of a private fund or partnership’s profits that is paid to managers as part of their compensation, or carried interest, would be taxed as ordinary income at a rate of as much as 37%. Under existing tax law, it is taxed at the lower capital gains rate, a maximum of 23.8%.”
Representative Bill Pascrell Jr. is a main supporter of H.R. 1068 and sternly believes that those who make more should give more. As it goes with most legislature that receives fire, this isn’t the first time Democratic representatives have attempted to levy carried interest. There were talks of introducing it in 2019 although largely evaporated, Biden’s proposed tax plan rekindles the battle to reform.
“The carried interest loophole has allowed private equity tycoons to pay lower tax rates than their secretaries,” Pascrell Jr. said. “This loophole has survived too long and we are going to push hard to see that it is finally closed.”
29% of respondents in a survey of commercial real estate organizations feel that changes to carried interest, as well as increased taxes under the Biden Administration, will create massive disincentives for real estate investment and development alike.
“It would discourage risk taking that drives job creation and economic growth. In short, it would have profound unintended consequences for main streets of cities and towns all across our country.”