Carried Interest Fairness Act of 2025
Sponsor
Marie Perez
Democrat · WA-3
Latest Action · Feb 6, 2025
Referred to the House Committee on Ways and Means.
Bill Progress
Congress Moves to Close Carried Interest Loophole
Why it matters
This bill would force high-earning investment managers to pay more taxes, leveling the playing field for all taxpayers.
The big picture: For years, private equity and hedge fund managers have enjoyed a big tax break. They pay lower capital gains taxes, instead of regular income taxes, on much of their earnings (called 'carried interest'). The Carried Interest Fairness Act of 2025 aims to change that, treating those profits as regular income and taxing them at higher rates.
Zoom in: The bill would tweak tax law so that when people get a share of a partnership (like an investment fund) for their work, they pay taxes based on its true market value immediately. It also lays out special rules for those offering investment management services, focusing on people who profit most from carried interest.
Between the lines: Wall Street lobbyists have fiercely defended the loophole for years, saying it encourages innovation and investment. Supporters of the bill argue it’s a matter of fairness—regular Americans pay income tax on their earnings, so should investment managers. The measure is part of a larger push to ensure the wealthy and well-connected pay their fair share.
What This Bill Does
Taxes partnership interest as income
When someone receives a share in a partnership for their work, it will be taxed like regular income, not as a special, lower-taxed capital gain.
Fair market value rule
Partnership interests will be valued based on what they'd be worth if all assets were sold right away, making it harder to understate their true value.
Rules for investment managers
Special guidelines apply to investment managers, making sure their fees and compensation are taxed at higher rates.
Limits on tax deferral
Prevents investment professionals from delaying taxes on income they've already earned through partnership interests.
Broader IRS authority
Gives the IRS more power to interpret and enforce these new rules, reducing gray areas and loopholes.
Who Benefits
Everyday taxpayers
Could see fairer tax rules, as high earners pay rates closer to what everyone else pays.
Middle-class workers
May get a sense of fairness restored in the tax system and potentially benefit from more government revenue.
Small business owners
Face less of a tax disadvantage compared to large investment managers.
Who's Affected
Private equity and hedge fund managers
Would pay higher taxes on millions (or billions) in carried interest income.
Large investment firms
Could see higher compensation costs and changes to their tax planning strategies.
Tax advisors
Will need to help clients adjust to the new tax rules and compliance requirements.
Investors in private funds
Might see fund managers pass on some increased tax costs, potentially lowering investors' returns.
Cosponsors (2)
Recent Actions
Referred to the House Committee on Ways and Means.
Introduced in House
Introduced in House
What Changes in the Law
1 changes
Sections Amended
Section 211(a) of Social Security Act
striking ``and'' at the end of paragraph (15), by striking the period at the end of paragraph (16) and inserting ``; and'', and by inserting after paragraph (16) the following new paragraph: ``(17) Notwithstanding the preceding provisions of this subsection, in the case of any individual engaged in the trade or business of providing services described in section 710(c)(2) of the Internal Revenue Code of 1986 with respect to any entity, investment services partnership income or loss (as defined in section 1402(m) of such Code) shall be taken into account in determining the net earnings from self-employment of such individual
Committees (1)
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