52 Groups Press Senate to Close Carried Interest Tax Loophole

The 52 groups wrote in their letter that as Congress works to find "offsets that are supported across party lines, funding from closing the carried interest loophole could help pave the way for a budget deal that would allow for increased investments in programs that support middle-class economic growth."

The groups urged Senate leaders to sign Sen. Baldwin's letter requesting that they use revenue from closing the carried interest loophole to "raise budget caps above harmful sequester levels," and that they cosponsor her legislation.

The carried interest loophole is "an egregious violation of the principle of tax fairness," the groups state, as it allows investment managers at hedge funds and in private equity to pay the lower capital gains rate of 20% (plus an additional 3.8% investment tax paid for the Affordable Care Act) on the portion of their earnings known as carried interest.

"Since these fees are compensation for services, this income should be taxed as ordinary income just like the compensation others earn from work," the group say. "If this compensation were taxed at the ordinary income tax rate these wealthy investment managers would be taxed at the top rate of 39.6%. Instead, the carried interest loophole helps some of the wealthiest Americans pay a lower effective tax rate than some middle-class workers, such as nurses, engineers, and law enforcement workers."

The loophole, the groups argue, "plays an important role in the growing gap between the richest 1% and everyone else in America." They state that the top-25 hedge fund managers earned a total of $11.6 billion in 2014—what has been called "a 'bad' year" compared to the $21.2 billion earned in 2013.

By comparison, the groups write, "the country's 158,000 kindergarten teachers earn about $8.5 billion a year in total."