The Carried Interest Loophole Survives Another Political Battle


“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 why she considered it so important to preserve the carried interest tax treatment. She has said that she plans to work on legislation with Senator Mark Warner, Democrat of Virginia, to address the loophole. But if the legislation is not included in the current package, which is being fast-tracked under an arcane budget process, any reform will require support from at least 10 Republicans.

“I think we reached agreement that there are areas where there’s been abuse,” Mr. Warner said in an interview, adding, “I’m disappointed it didn’t get in this bill, but I’m looking forward to working with Senator Sinema — and others — to see if we can address this.”

In a statement on Thursday, Ms. Sinema said, “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.”

Emily Cochrane contributed reporting.



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