A bill has been proposed in the New York State Assembly to close the “carried interest tax loophole” at the state level by taxing the carried interest income of private equity managers as ordinary income at a rate of 39 percent, rather than at the current capital gains rate of 20 percent.
The legislation is being introduced as a regional effort at the state-level in conjunction with the state legislatures of Connecticut, New Jersey and Massachusetts. The bill would make the tax increase contingent on the passage of corresponding legislation in Connecticut, New Jersey and Massachusetts, so that GPs could not avoid the tax by moving operations to a nearby state.
The bill was introduced by assembly members Jeffrion Aubry (D-35th district), Rodneyse Bichotte (D-42nd district) and Anthony Brindisi (D-119th district) last week, and has been referred to the state Committee on Ways and Means.
Closing the “loophole” would bring in an extra $3.7 billion in tax revenue for New York State a year, according to a memo accompanying the bill.
The bill would also “serve as a sign to the rest of the country that the New York State legislature is able to create reasonable comprehensive tax reform that does not seek to further enrich members of the economic elite on the backs of everyday Americans,” the memo added.
Supporters of the bill include such organizations as Patriotic Millionaires, Strong Economy for All, The Hedge Clippers and Citizen Action New York.
“This loophole is perhaps one of the most egregious examples of corporate welfare that I’ve ever seen. You know that there is something seriously wrong with the system when average hard working New Yorkers—school teachers, firefighters, police officers—pay a higher percentage in taxes than hedge fund millionaires,” said Aubry in a statement from Patriotic Millionaires, a group of high-income individuals that advocates for higher taxes on the wealthy.
Carry tax reform has been a hot topic at the federal level in recent years, landing in President Barack Obama’s federal budget proposal every year of his presidency and sparking bill proposals in both the House of Representatives and the Senate, all of which have been shut out or stalled, primarily by Republican lawmakers.
Carry taxation has also attracted plenty of attention during the current US presidential campaign, with frontrunners Hillary Clinton and Donald Trump both pledging to increase taxes on carry should they win the presidency in November.