Ending the Carried Interest Loophole Act

The Ending the Carried Interest Loophole Act (S. 2617) proposes a significant change to how managers of private equity, real estate, and hedge funds are taxed on their earnings. Currently, these professionals can often treat a portion of their compensation—known as "carried interest"—as investment gains, which are taxed at a lower long-term capital gains rate and can be deferred until investments are sold.

If passed, this bill would require these fund managers to report this compensation as ordinary income on an annual basis, similar to how most wage earners are taxed. By reclassifying this income and applying self-employment taxes, the bill aims to ensure that investment management fees are taxed at the same rates as standard salary and hourly wages. While this change primarily affects high-income professionals in the financial sector, the resulting increase in federal tax revenue is intended to fund broader government operations and public services.