Levin -- Legislation Fixes Carried Interest Loophole

WASHINGTON – Ways and Means Committee Ranking Member Sander Levin (D-MI) has twice authored legislation – which he will reintroduce again this year – to tax carried interest compensation at the same ordinary income tax rates paid by other Americans. Certain investment managers – including private equity managers – now benefit from a loophole that allows them to pay a reduced 15 percent tax rate on income received as compensation, rather than ordinary income tax rates up to 35 percent that all other Americans pay. Rep. Levin first introduced the measure in 2007 and it has passed the U.S. House four times as part of broader measures since then. It has yet to pass the Senate.

"Gov. Romney's statement that his tax rate is close to 15 percent likely reflects that he has benefited from a loophole that we have been trying to close for years," said Rep. Levin. "In 2007 I introduced legislation to close that loophole and it has passed the House four times as part of broader measures. When Gov. Romney says his tax rate mostly reflects returns on his own investment, he needs to clarify how much this is truly money that he invested himself and how much is carried interest income that he earned managing other people's money. Conflating the two is at the heart of this tax equity debate."

In exchange for providing the service of managing their investors' assets, fund managers often receive a portion – usually 20 percent – of the fund's profits, or carried interest. Rep. Levin's legislation clarifies that this income is subject to ordinary income tax rates rather than the much lower capital gains rate.

Timeline of Action on Carried Interest Legislation:

• June 22, 2007 – Rep. Levin introduces H.R. 2834 to treat carried interest as ordinary income.  Original co-sponsors include Ways & Means Chairman Rangel and Financial Services Chairman Frank.
• Nov. 9, 2007 – The House of Representatives approves carried interest legislation as part of H.R. 3996, which included tax extenders, an AMT "patch" and other provisions. 
• June 22, 2008 – The House of Representatives approves carried interest legislation as part of H.R. 6275, the Alternative Minimum Tax Relief Act of 2008.
• April 2, 2009 – Rep. Levin reintroduces legislation to treat carried interest as ordinary income (H.R. 1935) for the 111th Congress.
• Dec. 9, 2009 – The House of Representatives approves carried interest legislation as part of H.R. 4213, which extended various expiring tax provisions.
• May 28, 2010 – The House of Representatives approves carried interest legislation as part of amendments to the Senate-passed version of H.R. 4213.
• 2012 – Rep. Levin to reintroduce carried interest legislation.

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