U.S. Senator Tammy Baldwin to Chairman Hatch: Let’s Keep President Trump’s Promise to Close Carried Interest Tax Loophole for Hedge Funds on Wall Street

WASHINGTON, D.C. – Today, U.S. Senator Tammy Baldwin sent a letter to Senator Orrin Hatch (R-UT), the Chairman of the Senate Committee on Finance, urging him to keep President Trump’s promise to close the carried interest tax loophole for hedge fund managers on Wall Street. Senator Hatch is expected to release the Senate Republicans’ tax plan on Thursday.

Senator Baldwin wrote: “President Trump has made a promise to the American people to close the carried interest tax loophole. He included the promise in his tax reform plan as a candidate. He spoke about it extensively, stating, ‘We will eliminate the carried interest 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.’ On May 1, 2017, after being asked why his tax reform outline didn’t specifically mention carried interest after campaigning on its closure, the President responded by saying, ‘It’s out. Done…carried interest was great for me, but carried interest was unfair and it’s gone.’ I agree with President Trump, this loophole for hedge fund managers on Wall Street should be closed and we should work together to help him keep his promise.”

The carried interest loophole allows certain investment managers to benefit from a tax loophole that allows them to take advantage of the preferential 20 percent tax long-term capital gains rate on income received as compensation.

Senator Baldwin’s Carried Interest Fairness Act would end this loophole by ensuring that income earned by managing other people's money is taxed at the same ordinary income tax rates as that of the vast majority of Americans. The Joint Committee on Taxation has concluded that closing this loophole will raise $15 billion in revenue over 10 years.

On Monday, House Ways and Means Committee Chairman Brady offered an amendment to the House tax plan that maintains the ability of hedge fund and private equity managers to claim the lower capital gains rate on their compensation. The amendment requires the higher short-term capital gains rates for investment income only if the investments are held for less than three years. This change will not affect investments which are longer than three years. It also allows these filers to avoid the payroll taxes ordinary workers must pay on their labor income.

In the letter to Chairman Hatch, Senator Baldwin wrote, “I believe that if we close this tax loophole for wealthy and powerful hedge fund managers, we can invest this revenue in much-needed tax cuts for hard working families and small businesses who need tax relief.  However, the House’s partisan tax proposal lets big money hedge funds keep this loophole so they can pay a lower tax rate than the vast majority of working people across Wisconsin. That’s not fair and it fails to keep the President’s promise.”

A copy of the letter is available here.