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January 31, 2017

Proposed bill closing tax loophole could net CT $520M a year

Lawmakers and advocates are gathering at the state Capitol today to introduce legislation that would close the “carried interest” tax loophole and generate more than $520 million in tax revenue for Connecticut.

Similar bills are planned or have been introduced this year in New York, Massachusetts, New Jersey and Rhode Island as part of a regionally coordinated effort between lawmakers.

A loophole created in the 1990s in federal tax policy allows highly compensated hedge fund managers and private equity managers to pay a capital gains tax rate of 20 percent, instead of the marginal tax rate of 39.6 percent for ordinary income.

Attempts at the federal level to tax carried interest like ordinary income have been unsuccessful.

Bill 6973, which has 35 legislative co-sponsors, would impose a surcharge of 19 percent on investment management services fees, but would only be effective if similar bills are passed by the states of Massachusetts, New Jersey and New York.

Lindsay Farrell, executive director of the Working Families Organization, called the loophole “absurd and totally unfair.” If closed, “it could raise enough badly needed revenue to narrow Connecticut’s budget deficit by a third, helping working people keep services and care for their families,” he said.

The business community has lobbied against similar bills in the past and will likely raise opposition to the proposal again.

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