The Carried Interest loophole survives another political battle

“Carried interest has become the MacGuffin of the IRA saga,” said James Lucier, an analyst at Capital Alpha Partners, a Washington policy research firm, describing it as a literary tool authors use only to make plots more interesting. “The MacGuffin diverted attention from the really important things in the story to ultimately make the surprising conclusion even more surprising.”

On Friday, some progressive policy experts dismissed the removal of the carry rate provision, which they viewed as only a modest improvement over the current law.

“The proposal that was in the bill until last night made a technical adjustment in the holding period for assets eligible for carry-interest treatment,” said Jean Ross, a senior fellow at the Center for American Progress, a liberal research group in Washington. “A better approach would address the issue directly and say that fees for services that manage an investment fund should be taxed as work and subject to normal tax rates.”

Ms. Ross added that she welcomed the addition of the stock buyback tax, which some Democrats and their allies have long supported, arguing that companies are overspending to buy back their own shares, instead of investing in research and development or giving employees pay rises.

Mrs. Sinema herself has said little about why she finds it so important to maintain the tax deduction. She has said she plans to work with Virginia Democrat Senator Mark Warner on legislation to address the loophole. But if the legislation is not included in the current package, which is being accelerated as part of a secretive budget process, any reform will require the support of at least 10 Republicans.

“I think we have agreed that there are areas where there has been abuse,” said Mr Warner in an interview, adding: “I am disappointed that it has not been included in this bill, but I look forward to working with Senator Sinema – and others – to see if we can tackle this.”

In a statement on Thursday, Ms Sinema said: “We have agreed to eliminate the provision for deferred interest taxes, protect advanced manufacturing and boost our clean energy economy in the Senate budget reconciliation legislation.”

Emily Cochrane reporting contributed.

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