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Several States Consider Drafting A Bill To Block Carried Interest Tax Loophole

Some states are taking matters into their own hands after Congress voted to retain the carried interest tax break under the new tax bill, Axios reports.

New York is currently considering the creation of state legislation that would prevent hedge fund managers, among others, from paying less in taxes. The bill is expected to be a collaborative effort with several other states, including Connecticut, New Jersey, Pennsylvania and Massachusetts, but will only pass if all parties agree to a similar bill.


Carried interest was initially instituted to provide a tax incentive for long-term investments, but has been criticized over the years for misuse. Hedge fund managers in particular have been repeatedly accused of abusing it for personal gain. President Donald Trump had openly opposed the tax break during his campaign, saying many hedge fund managers were "getting away with murder."

While the top tax rate on regular income is 37%, carried interest allows investment fund managers to pay as little as 20% for regular income because it is treated by the federal government as capital gains. 

In an effort to balance this, New York has proposed a bill that would place an additional 17% tax on investment profits earned by hedge fund managers, private equity, real estate and venture capital funds, Axios reports.