A number of progressive groups in the New York State assembly are working to close what they call the carried interest loophole.
Assemblymen have started a campaign to close the loophole, which allows hedge fund managers to pay far less federal tax on a large proportion of their income. The state politicians are due to introduce a bill this Monday which would raise taxes on residents who currently pay less federal tax, writes Noam Scheiber for The NYTimes.
Interest Loophole – Extra New York tax revenue could be used for economic projects and schools
The members believe that the current situation unfairly benefits some members of society, and it hopes to generate extra revenue for the state by changing the tax code. It is thought that the extra money could be used to invest in schools and economic projects.
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“People from Buffalo, when they work, they pay their taxes,” said Assemblyman Sean Ryan, one of the two Democratic legislators who are sponsoring the bill. “We don’t have a lot of hedge funds in Buffalo, but we do have a need for state assistance.”
It is thought that the bill could raise $3.7 billion per year in New York. It is contingent on similar legislation being passed in neighboring states to prevent fund managers from moving across state lines to avoid the tax.
Campaign reaches across the United States
Patriotic Millionaires and Hedge Clippers are two of the groups involved in the coalition, which aims to campaign for similar legislation in California, Illinois and Pennsylvania. The proposed changes have received support from both Republicans and Democrats in U.S. Congress, but so far no changes have been made.
The movement is opposed by those who claim that hedge fund managers deserve to pay a lower rate of tax because they are being repaid for the “sweat equity” that they have invested in their business. Some argue that hedge fund managers should be treated like Facebook founder Mark Zuckerberg, who is taxed at a lower rate.
However the argument for Zuckerberg “is that there’s an undersupply of entrepreneurs, and the world needs more Zuckerbergs,” said Victor Fleischer, a professor at the University of San Diego School of Law. “You can’t make the argument that there’s an undersupply of venture capitalists or private equity fund managers.”