Republicans Propose Last-Minute Changes to Tax Bill
WASHINGTON — Republicans outlined significant changes on Monday to the sweeping tax bill unveiled by House lawmakers last week, moving to tighten restrictions on so-called carried interest, alter rules aimed at preventing American companies from stashing profits offshore and further restrict a tax credit claimed primarily by low- and middle-income individuals.
The changes came as part of an amendment, submitted by Representative Kevin Brady, Republican of Texas and the chairman of the House Ways and Means Committee. The panel, voting along party lines, approved the amendment on Monday night as the official process of debating the bill began.
Among the most significant changes is a provision that would aim to close the so-called carried interest loophole, which has been a source of ire among Democrats and some Republicans, who argue it is an unwarranted tax break for the wealthiest Americans. A substantial portion of the compensation of hedge fund and private equity executives is derived from the investment gains that their funds generate. Under the current tax code, that compensation is treated as capital gains, meaning it is taxed at a rate of 23.8 percent, well below the 39.6 percent income-tax rate that now applies to the top tier of individual earners.
Mr. Brady’s amendment would require investors such as hedge fund managers and real estate developers to hold on to assets for three years to qualify for the lower capital gains rate on their income. The move would essentially seek to weed out those who use the loophole to avoid paying ordinary income tax rates on their earnings. Mr. Brady, speaking on CNBC, said the effort was intended to “make sure it really is focused on those long-term, traditional real estate partnerships.”
Carried interest has been the subject of intense political debate and critics of the plan complained that it was not addressed in the original bill. President Trump said repeatedly on the campaign trail that hedge fund managers should not use the loophole to pay lower taxes than middle-class American working jobs with salaries.
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