Carried Interest Tax Break on the Chopping Block?

10:03 pm Tax Planning

ax chopping block 150x150 Carried Interest Tax Break on the Chopping Block?An article in the Huffington Post yesterday reported that President Obama and Democrats in Congress are eyeing the carried interest tax break as one example of special interest tax perks that need to be eliminated in order to decrease the federal deficit and bring fairness back to the tax code.

The carried interest tax break allows those employed by private equity firms and hedge funds to claim much of their income at a significantly reduced rate than middle income workers by taxing shares of a partnership’s profits at the capital gains tax rate rather than the higher income tax rate.

The practice became a much-discussed issue during last year’s presidential campaign after Mitt Romney revealed that he paid an effective tax rate of around 14 percent in the previous two tax years since most of his income came from private equity firm Bain Capital.

The Obama administration views the carried interest tax break as favored treatment, noting that it costs the U.S. Treasury around $1.3 billion annually.  In an interview during the Super Bowl, the President told CBS News that the carried interest tax break is just one of many tax loopholes that should be closed to reduce the deficit.

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