On Thursday, June 23, several of my fellow Patriotic Millionaires and I traveled to Capitol Hill to meet with various elected officials and discuss carried interest. The carried interest loophole is a tax break that allows private equity managers to be taxed at a lower rate than the average American.
Private equity managers, who are often very wealthy, earn a living by collecting fees from investing other people’s money. While these fees can total in the millions and even billions of dollars, private equity managers are not taxed at the standard income tax rate. Instead, they classify their income as “carried interest,” which is then taxed at the much lower capital gains rate. So while a working-class plumber or school teacher might be taxed at up to 40% of their income, private equity managers might only be taxed at a rate of around 20%.
The carried interest tax loophole is an egregious provision that has been maintained through a myriad of lobbying efforts by wealthy investment firms. Thankfully, we have several commendable, hard-working leaders in Congress acting to close this loophole. Senator Tammy Baldwin of Wisconsin and Representative Sandy Levin of Michigan, who have put forth the Carried Interest Fairness Act of 2015, held a press conference on the issue at the start of our day on the Hill. They each explained the carried interest loophole and why it must be closed, maintaining that it is unjust and does not reflect the America we wish to live in. Even my colleague, Patriotic Millionaire Art Lipson, a hedge fund manager who actually benefits from the loophole, denounced the loophole at the conference, stating, “As a hedge fund manager, I feel that I have an unfair advantage.”
After the press conference, we met with more officials who we believed could significantly bolster our movement. It was an important accomplishment to meet with powerful leaders like Senator Schumer of New York and learn more about their perspectives. While it critical that the new members of Congress focus on practical policies like a higher federal minimum wage, campaign finance reform, and other anti-poverty initiatives, it is also critical that closing the carried interest tax loophole not be ignored and that we ensure every American is paying their fair share of taxes.
Additionally, our meetings with staff in the offices of Senator Hatch and Congressman Brady, politicians who might both be perceived as opposed to our work, were extremely valuable in a different way. Broaching the subject of carried interest with those who might be less prone to joining this fight reminded us of the dire need to clarify and communicate carried interest to everyone, regardless of party affiliation or political philosophy. Despite being reminded of these challenges, these meetings also instilled a great amount of hope in each one of us. Being able to have a civil dialogue with elected officials from more fiscally conservative states proved to us that closing the carried interest loophole is by no means an impossible task. This is not a political nor philosophical issue; it is one of fairness.
My fellow Patriotic Millionaires and I proudly anticipate the day when we can finally close this loophole and achieve a grand step towards a more just and equitable society for all of us.
Mr. Phil Edmundson co-founded WGA in 1983. He became CEO in 1997 and has since grown the firm to be one of the largest independent brokerages in the country. Mr. Edmundson is a Director of the Council of Insurance Agents and Brokers (CIAB), in Washington, D.C.