Carried interest is usually referred to as a 2/20 ratio—meaning private equity and hedge fund managers charge an annual 2 percent fee on the assets under management and get 20 percent of the profit from those assets.
At the heart of the debate is how that 20 percent profit is taxed. Currently, these firms are taxed at the capital gains rate of 15 percent, which is significantly lower than the 35 percent tax on ordinary income.
By closing this loophole, it is estimated that $25 billion could be raised in the next decade.
It is a tough case for private equity executives to make against changing the way their profits are taxed, as evidenced The Blackstone Group CEO Steve Schwarzman’s answer to my question on the matter today.
So, where does Washington stand on this issue? Last year a proposal to change these tax laws passed the House of Representativesbut stalled in the Senate.
In fact, a law to change this tax advantage by taxing carried interest as regular income is not included in any bills current pending before both houses of Congress.
But some members of the Senate Finance Committee told reporters, earlier this month, that changing the tax-rate was "on the table" for consideration.
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