Senate bill targets carried interest tax break for fund managers

What does this do?

This bill changes how investment fund managers are taxed on carried interest, which is the share of a fund's profits they earn for managing it. Instead of paying the lower long-term capital gains tax rate, managers would pay ordinary income tax rates on the part of their earnings that goes beyond a normal return on their own invested money. The bill also closes workarounds, such as using partnership loans or financial contracts, that could let managers avoid the new rules.

Who does it affect?

This bill primarily affects managers of private equity, hedge, and venture capital funds who receive carried interest as compensation. It does not affect ordinary investors, employees, or small business owners.

Why does it matter?

Carried interest is currently taxed at the lower capital gains rate; this bill would treat the compensation portion of those earnings more like a regular paycheck for tax purposes. Managers who use certain financial arrangements to get around the rules would also be covered under the new law.

Where does it stand?