Bannon Backs Limit to Carried Interest in House Tax BillBy
Calls change requiring investments be held 3 years populist
Tax break benefits managers of private equity, venture capital
Former White House political strategist Steve Bannon backs a House Republican proposal to preserve the carried-interest tax break for investment managers but add limits on its use, he said in a statement to Bloomberg.
The House proposal would require managers of private-equity and hedge funds to hold investments for at least three years to qualify for the lower capital gains rate on compensation through carried interest. Bannon, President Donald Trump’s former strategist and an architect of his populist campaign, said the change would encourage fund managers to focus on longer-term investments.
“I have long called for the elimination of the carried interest loophole but I believe that the proposal in the House tax bill requiring investments be held for a minimum of 3 years to qualify for capital gains is a good way of eliminating short-term financial engineering that benefits no one, while encouraging long-term investments that create good paying jobs,” he said.
Bannon said he regards the outcome as a populist win.
Trump had promised in his campaign that he would eliminate the carried-interest tax break, which lowers the taxes paid by private-equity managers, venture capitalists, hedge fund managers and certain real estate investors.
Carried interest is the portion of a fund’s profit -- usually a 20 percent share -- that’s paid to investment managers. Currently, tax authorities treat that income as capital gains, making it eligible for a rate as low as 23.8 percent. The top tax rate for ordinary income is currently 39.6 percent.
Taxing carried interest as ordinary income would raise $15 billion over a decade, according to the Tax Foundation, a nonprofit research organization in Washington. It’s not yet clear how much the House provision to increase the required holding period would raise, but it would be a fraction of fully repealing the tax break.
Senate Finance Chairman Orrin Hatch declined to say Thursday morning whether his version of a tax overhaul will also limit carried interest.
“You’ll have to wait and see,” he said.
— With assistance by Sahil Kapur