The Carried Interest Loophole Survives Another Political Battle

POLITICS: The Carried Interest Loophole Survives Another Political Battle

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Some analysts were skeptical all along that lawmakers would actually change the carried interest tax treatment in the final bill. While it has become a high-profile target, the change Democrats were seeking would have raised little tax revenue compared with other provisions in the legislation, known as the Inflation Reduction Act.

“Carried interest has become the MacGuffin of the I.R.A. saga,” said James Lucier, an analyst at Capital Alpha Partners, a policy research firm in Washington, describing it as a literary device that authors include merely to make plots more interesting. “The MacGuffin distracted attention from the really important things going on in the story to make the startling conclusion even more surprising in the end.”

On Friday, some progressive policy experts shrugged off the elimination of the carried interest provision, which they considered only a modest improvement over current law.

“The proposal that was in the bill until last night made a technical adjustment in the holding period for assets that qualified for carried interest treatment,” said Jean Ross, a senior fellow at the Center for American Progress, a liberal research group in Washington. “A better approach would tackle the issue head-on and say that compensation for services managing an investment fund should be taxed like work and subject to ordinary tax rates.”

Ms. Ross added that she was pleased by the addition of the tax on stock buybacks, which some Democrats and their allies have long supported, arguing that companies are spending too much money buying back their own shares, rather than investing in research and development or giving workers raises.

Ms. Sinema herself has said little about the legislation or why she considered it so important to preserve the carried interest tax treatment.

“We have agreed to remove the carried interest tax provision, protect advanced manufacturing, and boost our clean energy economy in the Senate’s budget reconciliation legislation,” she said in a statement Thursday.

Alan Rappeport reported from Washington, and Emily Flitter from New York. Emily Cochrane contributed reporting from Washington.



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