Stock buybacks could be curbed by the repeal of the infamous “carried interest” provision that, among other things, allows private equity managers to avoid paying capital gains tax on the profits made when investors sell their companies.
Chairman of the Joint Economic Committee, Senator Sherrod Brown, has been pushing for a repeal of the carried interest provision because he claims that it artificially distorts the market and damages the economy.
Senator Warren, however, has been fighting for the provision, which she sees as a part of the market reform that has happened in the last few years. “The tax code must level the playing field, including for high-tax-paying companies, their high-wage workers, and their owners, the professional investors,” she said.
Warren and Brown’s similarities in positions is probably why they, too, agreed to co-sponsor the Stop Tax Avoidance by Corporate Elites Act, a bill co-sponsored by Senator Orrin Hatch, H.R. 5797.
Through the protections of the carried interest provision, well-connected private equity managers avoid paying capital gains tax on most of the profits they earn from the business. Congress used the exemption, originally designed to create private equity investment pools, to allow non-management partners to run their own businesses rather than handing their teams off to management from early on.