He made his name in academia by criticizing a lucrative tax break for private-equity managers. Now Victor Fleischer is taking his anti-loophole thinking to Washington.
Fleischer will serve as a formal adviser to Democrats on the powerful Senate Finance Committee, a perch from which he says he’ll seek ways to close the so-called “carried interest” loophole -- and to curb other tax benefits.
Fleischer’s appointment is the clearest sign yet that some members of Congress want to eliminate the carried-interest break and tax private-equity managers’ income at ordinary rates. It also signals that congressional pushes for a tax overhaul will seek curbs on other special tax advantages as well.
“I will be working on carried interest, but that’s not the only thing, of course,” Fleischer, a professor of corporate tax law at the University of San Diego, said in a telephone interview. “It’s obviously going to go beyond private equity.”
His influence could grow considerably if Democrats win the majority in the Senate in November. Senator Ron Wyden, the Oregon Democrat who hired Fleischer, would take over as the finance panel’s chairman, replacing Republican Senator Orrin Hatch of Utah.
Capital Gains
“Carried interest” is Wall Street jargon for the chunk of profit paid to managers of private equity, real-estate and other funds. It’s typically 20 percent of a fund’s net gain. Some, including Fleischer, argue that the payments are compensation, like wages. Instead, they’re taxed at capital-gains rates -- as low as 23.8 percent. That’s well below the top rate for wages and other ordinary income, which is 39.6 percent. (Fund managers also typically earn an annual 2 percent fee.)
The arcane term blasted into the political mainstream last year, when both Donald Trump, the Republican presidential nominee, and Hillary Clinton, the presumptive Democratic nominee, called for taxing carried interest as ordinary income.
Trump’s memorable phrase, “hedge-fund guys are getting away with murder,” is somewhat off-base when it comes to describing carried interest. That’s because hedge funds tend to liquidate their investments much faster than private-equity funds, and to be eligible for the lowest rate on capital gains, investments must be held for more than a year.
‘Overwhelming Majority’