A bill was proposed last week in the New York State senate to close the “carried interest tax loophole” at the state level by introducing a state-level top-up fee.
State Senator Jeff Klein (D-Bronx/Westchester) introduced the legislation that creates a 19 percent “carried interest fairness fee” on income earned by fund managers on investment management services. This fee, on top of the current capital gains rate of 20 percent, would bring the tax on fund managers up to the ordinary income rate of 39 percent.
The fee would bring in $3.7 billion in tax revenue for New York State each year, according to a statement from Klein’s office.
The bill mirrors one proposed in the New York State Assembly earlier this month by assembly members Jeffrion Aubry (D-35th district), Rodneyse Bichotte (D-42nd district) and Anthony Brindisi (D-119th district), which was referred to the state Committee on Ways and Means.
Both bills are being introduced as a regional effort at the state level in conjunction with the state legislatures of Connecticut, New Jersey and Massachusetts. The bill would make the tax increase contingent on the passage of corresponding legislation in Connecticut, New Jersey and Massachusetts, so that GPs could not avoid the tax by moving operations to a nearby state.
“It’s unconscionable when teachers, lawyers and janitors pay a higher tax rate than a fund manager because of a broken tax system,” Klein said in the statement.
“Fund managers must pay the same tax rate for the fruits of their labours and New York will work with surrounding states to make sure this happens. Congressional gridlock will not stop us from fixing this loophole and finally collecting the taxes due to the state for work performed on Wall Street.”
In the statement, Klein said that states had been “left to take action as a result of Congressional gridlock”, but noted that leading presidential candidates on both sides of the aisle are “embracing a change to this inequity in the law”.
The bill states that the “carried interest fairness fee” will be payable to the state of New York “until such time as the commissioner of taxation and finance has notified the legislative bill drafting commission that the US Congress has passed and the President of the United States has signed legislation having an identical effect with this act applicable to such income earned in all of the states and territories”.
Supporters of the bill include such organisations as Patriotic Millionaires, Strong Economy for All, and The Hedge Clippers.
Presidential hopefuls Hillary Clinton, Donald Trump and Bernie Sanders have all voiced plans to close the “carried interest tax loophole”, while Ted Cruz advocates a flat tax system.