H.R.1091 - Carried Interest Fairness Act of 2025 (119th Congress)
Summary
H.R. 1091, the Carried Interest Fairness Act of 2025, aims to modify the tax treatment of income earned through partnership interests, particularly those in investment management. The bill seeks to treat certain partnership interests as ordinary income rather than capital gains, closing a perceived loophole. This would affect how investment managers are taxed on their share of profits from investment partnerships.
Expected Effects
The primary effect of this bill would be to increase the tax burden on investment managers who receive carried interest. By reclassifying carried interest as ordinary income, it would be taxed at a higher rate than capital gains. This could lead to increased government revenue and potentially alter investment strategies within the financial sector.
Potential Benefits
- Increased tax revenue for the government, potentially funding public services or reducing the deficit.
- Greater fairness in the tax system by treating income from services similarly to other forms of compensation.
- Reduced incentives for tax avoidance strategies related to carried interest.
- Potential for increased investment in other sectors if investment managers seek alternative investment strategies.
- May discourage excessive risk-taking by investment managers, as their compensation would be taxed at a higher rate.
Most Benefited Areas:
Potential Disadvantages
- Potential reduction in investment in certain sectors due to increased tax burden on investment managers.
- Increased complexity in tax law, requiring additional regulations and guidance.
- Possible negative impact on the competitiveness of the U.S. financial industry if other countries have more favorable tax treatment.
- Potential for investment managers to relocate to lower-tax jurisdictions.
- May lead to increased tax planning and avoidance strategies as investment managers seek to mitigate the impact of the higher tax rates.
Most Disadvantaged Areas:
Constitutional Alignment
The bill primarily deals with taxation, which falls under the purview of Congress as granted by Article I, Section 8 of the Constitution, which provides Congress the power to lay and collect taxes. The Sixteenth Amendment further clarifies Congress's power to tax income, "from whatever source derived." The bill does not appear to infringe upon any specific constitutional rights or protections.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).