US Senate votes down carried interest tax

US Senators voted down legislation that would raise tax on carried interest in a 45 to 52 vote against the American Jobs and Closing Tax Loopholes Act of 2010.

The Senate needs 60 votes to pass legislation. Not a single Republican voted to pass the bill, while 11 Democrats and one independent voted against it. Three members of the Senate did not vote.

Republican senators claimed the bill, which includes an extension for unemployment benefits, would add $80 billion to the US government’s budget deficit.

According to a source familiar with the process, this vote does not mean a tax raise on carried interest is off the table.

Montana Democrat Max Baucus plans to introduce another amendment addressing carried interest, according to a source. “This is part of the negotiation process and there will likely be another vote on Friday,” they said.

On 7 June, Baucus, the Democratic chairman of the Senate Finance Committee, proposed an amendment that would decrease the percentage of carried interest characterised as ordinary income to 65 percent. This was a decrease from the US House of Representatives proposal of 75 percent.

Baucus’ amendment would soften the blow the House dealt to the private equity and private equity real estate industry last month.

With roughly half of all partnerships in the US, real estate partnerships – holding some $1.5 trillion of commercial real estate assets – the lobbying group the Real Estate Roundtable has argued that a carried interest tax hike will become the largest tax increase on real estate ever.

The US House on 28 May voted 215-204 in favour of HR 4213. That bill raised eyebrows because it for the first time proposed a hybrid treatment of carry, with 75 percent characterised as ordinary income and 25 percent as capital gains.