Washington Update
By NMHC

Carried Interest Tax Change Passes the House, Pending in the Senate The battle to defeat a change in the tax treatment of "carried interest" continues.

Just hours before adjourning for the Memorial Day recess, on May 28, the House of Representatives voted 215-204 to change the tax treatment of carried interest to "pay for" a bill that extends dozens of popular tax credit (H.R. 4213).

As late as May 24, both Houses of Congress were expected to expedite passage of the tax extenders bill before the holiday recess, but objections by the Blue Dog Coalition to the deficitraising cost of the measure delayed House action on the measure for a week.

When House passage became in doubt, the Senate adjourned until June 7 without considering the measure. Under the House bill, effective January 1, 2011, 50 percent of a carried interest will be taxed at ordinary rates, and 50 percent will be taxed at capital gains rates.

After January 1, 2013, 75 percent of carried interest would be taxed at ordinary income tax rates, and 25 percent at capital gains rates. The tax law change would be imposed on all existing and new partnerships. The bill also subjects carried interest to the self-employment tax.

The Joint Committee on Taxation said the change is expected to raise $17.7 billion in new revenues over 10 years. Before adjourning, Senate Majority Leader Harry Reid (D-NV) said that there will be a series of amendments offered on the bill, possibly requiring the House to vote on it again before the July 4 recess.

NMHC has mounted an aggressive campaign to oppose the tax law change, educating lawmakers about the unintended consequences it would have, including stifling the nascent economic recovery and exacerbating the nation's affordable housing shortage. A grassroots alert requesting members to send letters and make calls to their elected officials has been issued.

More information is available at www.nmhc.org/goto/5731.