Warren Buffett famously lamented that he pays a lower tax rate than his secretary. This is because hedge fund billionaires and other super rich private equity managers pay a lower tax rate than do most Americans by reporting annual fees as “capital gains” instead of income.
In Rhode Island, experts estimate there is some $200 million annually in this kind of income that is being under-taxed. A new bill introduced by Rep. Aaron Regunberg and Sen. Adam Satchell would capture that missing revenue to the tune of about $39.4 million a year.
“I’m tired of hearing again and again, inside this building and outside of it, that we don’t have the money,” Regunberg said at a press conference earlier this week. “We do have the money. We just keep getting suckered into not collecting it.”
It’s known as the “carried interest loophole” and it’s responsible for about $18 billion in lost revenue at the federal level. As a candidate, President Donald Trump promised to close the loophole.
“The carried interest loophole was something every single presidential candidate said had to be closed,” said Satchell. “Several state governments are realizing now that the Trump administration and the current Congress have no desire to do anything about this loophole because they and their friends are getting rich from it.”
In Rhode Island, the “lion’s share” of this income is earned by Jonathan Nelson and Glenn Creamer of Providence Equity Partners, said Michael Kink, the executive director of the Strong Economy For All Coalition, a group that has helped introduce similar bills in Massachusetts, Connecticut, New York, New Jersey, Maryland and California.
Morris Pearl, chairman of Patriotic Millionaires, a group of investment managers that advocate to tax capital gains at standard income rates, said he is trying to reach Nelson, said to be Rhode Island’s richest man, to ask him to support the bill. Nelson, who is said to have an estimated financial net worth of $1.9 billion, was contacted for this story, but could not immediately be reached for comment.
A 2012 Wall Street Journal story indicated Nelson is open minded to eliminating the carried interest loophole, writing:
It’s no secret that many private equity professionals vigorously oppose proposals to raise the tax rate on carried interest from the current capital gains tax rate to a higher ordinary income tax rate.
However, Jonathan Nelson, chief executive of media buyout shop Providence Equity Partners took a more measured view during a morning keynote at the Super Return conference in Boston today.
“I’m fine with a higher tax rate as long as it’s applied to all similar structures and businesses,” Nelson said. “I think it’s un-American to single out a group and develop a tax just for that group.
Specifically, Nelson said that if Congress does raise the tax rate on carried interest, it should do so across all limited partnership structures, including real estate, energy and venture capital.
Regunberg and Satchel said the bill was unlikely to pass this session. “With a lot of work, we get things across the finish line eventually,” said Regenburg. “That’s the hope.”