Taxing carried interest as normal earned income might not be as simple as it sounds, and there is vigorous disagreement about which technique for doing so would work best. Experts say closing the loophole could net the federal Treasury from $10 billion to $30 billion over 10 years.
Ken Kies, managing director of the Federal Policy Group, said he “would be very surprised” if carried interest is on the table.
“Republicans have just drawn a line at ‘no more taxes,’” Kies said. “Boehner and [Senate Minority Leader Mitch McConnell] have just been so emphatic.”
Meanwhile, investment firms, including hedge funds, that would be affected by eliminating the carried interest tax provision argue it would have a negative effect on economic growth at a time when the economic recovery remains tepid.
“Last year, private equity firms invested over $140 billion dollars in U.S.-based companies in every state and in every congressional district across the country. A tax hike on business investment would only serve to undermine our economic recovery and disincentivize the kind of entrepreneurial risk taking to start, save and grow businesses,” said Ken Spain, the vice president of public affairs for the Private Equity Growth Capital Council, the industry’s lobbying organization.