This week House Ways & Means Ranking Member Sander Levin (D-MI) introduced the “Carried Interest Fairness Act of 2012.”
“There is absolutely no reason why income earned for managing other people’s money shouldn’t be taxed in the same way as income earned teaching or working in a factory,” said Representative Levin in a press release. “This loophole for years has unfairly enabled some of the highest-paid individuals in the country to sharply reduce their tax bills and it is time to close it once and for all.”
Supporters of the legislation describe it as eliminating a loophole used by Wall Street private equity and hedge fund managers to avoid taxes. However, the proposed partnership tax law change would disproportionately impact the real estate industry since real estate partnerships comprise over 46 percent of all partnerships and many use a carried interest component in structuring development ventures. Although this particular bill has not yet been fully analyzed, the past efforts would have more than doubled the tax rate on real estate partnership carried interest, from 15 percent to nearly 35 percent.
The commercial real estate industry has vociferously opposed attempts to change carried interest in the past and we continue to think this is a bad idea. Reducing incentives for entrepreneurs to undertake the risks inherent in development would have a pronounced negative impact on the real estate industry, and would lessen the flow of investment capital to the real estate industry.
Click here to read more about this issue from Mr. Levin.
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