Eliminating the carried interest provision from the U.S. tax code is on the table as a part of comprehensive tax overhaul, House Ways and Means Chairman Dave Camp confirmed on Thursday.
In a brief interview following the Christian Science Monitor breakfast briefing with reporters, the Michigan Republican would not rule out eliminating the loophole, which famously allows hedge funds but also the more standard category of investor to pay the capital gains tax rate on their earnings, rather than the standard (and higher) income tax rate. Camp also confirmed that he favors repealing the health care law's medical device tax through comprehensive tax overhaul, rather than as a stand-alone bill.
“We’re going to look at all of the tax code and I’ve got a working group looking at [carried interest.] And, I’m going to let them make their report to the committee and have the joint committee analyze what they’ve come up with,” Camp told CQ Roll Call. “Everything’s on the table because we’re still doing our analysis of it. ... It is a very intricate set of issues. I’ve got working groups that haven’t completed their work and I’m going to let them do that.”
On the medical device tax in President Barack Obama’s landmark Affordable Care Act, Camp said that “obviously” it’s something he wants to see repealed, “but I would make it a part of comprehensive reform.”
Camp said his goal was for a comprehensive tax bill to receive a Ways and Means committee vote by year’s end, and that could rankle Senate Minority Leader Mitch McConnell, R-Ky. The Senate recently approved in overwhelming bipartisan fashion a nonbinding proposal to repeal the medical device tax, and McConnell is pushing House GOP leaders to swiftly move a stand-alone bill and send it to the Senate.
Although some House Republicans are concerned that Senate Majority Leader Harry Reid, D-Nev., might bury such legislation, others would welcome a stand-alone bill, which would almost assuredly pass the House with more than enough GOP votes. Erik Paulsen of Minnesota is among those House Republicans to have pushed for an immediate repeal of this revenue raiser.
Paulsen ran a repeal bill last year that easily cleared the House. The congressman’s spokesman, Philip J. Minardi, said the Minnesotan’s new bill has 218 bipartisan cosponsors, “enough to pass the House when brought up for a vote.”
Meanwhile, as Obama has in the past, he included a proposal to eliminate carried interest in his fiscal 2014 budget blueprint, leading supporters of the provision to warn that doing so would hamper economic growth and depress job creation. Supporters also point out that eliminating carried interest would lead to a large segment of investors being subject to “double taxation,” with their regular income being taxed and their investment being further levied at the regular rate.
As Jonathan Strong and I reported in February, GOP sources predict that House Republicans might consider supporting this tax hike despite their strong opposition to tax increases. Why?
According to these sources, congressional Republicans might consider agreeing to Obama’s proposal as a part of budget or tax overhaul negotiations with the White House because it could cause New York Democrats like Sen. Charles E. Schumer political problems at home, and because most Empire State hedge fund and similar investors are viewed as big-time Democratic donors who use their money to fund opposition to the GOP at the polls. (A Schumer spokesman told us that the senator "supports closing the loophole.")
But Grover Norquist of Americans for Tax Reform has made clear that he would consider a vote to eliminate carried interest to be a violation of the Taxpayer Protection Pledge that most congressional Republicans have signed. And the trade association that represents these investors in Washington, D.C., is fighting this policy, as it has done so successfully for several years.
“Changing the taxation of carried interest would upend the private equity business model – a model that is responsible for pumping hundreds of billions of dollars into the U.S. economy each year and strengthening thousands of businesses around the country,” said Ken Spain, a spokesman for the Private Equity Growth Capital Council. “A tax hike on long-term business investment would only serve to undermine our economic recovery and disincentivize the kind of entrepreneurial risk taking required to start, save and grow businesses.”