When the Senate returns from its Memorial Day recess on Monday, one of the first items on the docket is a tax extenders bill passed by the House last week that extends unemployment benefits and many popular tax credits, like the Research and Development credit.
The bill is partially offset by two tax changes: closing the loophole that allows wealthy money managers to pay the lower capital gains rate on their income (called “carried interest”) and no longer allowed multinational corporations to claim tax credits on earnings that they keep overseas.
The House has repeatedly passed the carried interest change over the last few years, and has shown more willingness to aggressively pursue closing loopholes for big corporations. Therefore, the big business lobby, led by the Chamber of Commerce and the Business Roundtable, has its sights set on the Senate, in the hopes of preventing the changes:
Interest groups from the U.S. Chamber of Commerce to the American Institute of Architects are counting on their Senate allies to alter the revenue-raising offsets passed by the House as part of a package of tax cuts and benefit extensions…[L]obbyists are trying to force some combination of carveouts, scalebacks and delays to the revenue-raising provisions that the House passed.
Business Roundtable President John Castellani said “there is a group of senators who have been ‘very supportive of making sure that U.S. companies are competitive internationally,’ but did not name names.”
As Zaid Jilani noted, lobbyists are saying that the carried interest change will target everyone from cancer patients to pensioners, based on the false claim that it will be a direct tax on investment. And the Senate has been steadily watering down the provision, suggesting that only 50 or 60 percent of carried interest should be subject to income tax rates.
But make no mistake: this is a change aimed at ensuring that incredibly wealthy people who manage money for others pay the same income tax rates as everyone else. As Citizens for Tax Justice explained, “the change affects only the managers of venture capital funds. It doesn’t change how the investors are taxed.”
As for the corporate tax change, it remains the case that a $100 billion annual tax burden is shifted onto the tax-paying population by tax avoidance. Allowing corporations to claim U.S. credits for profits they never repatriate creates no incentive for ever bringing that money back. As House Ways and Means Committee Chairman Sander Levin said, the status quo is “tilting the playing field in favor of investment overseas.”
With deficit hysteria currently gripping Capitol Hill, and the right-wing fearmongering about every little tax increase anyone suggests, raising revenue from common sense places is critical. Closing these loopholes, which only benefit the very wealthy and huge corporations, is a good place to start.