Assemblymember Phil Steck (D-Colonie) announced he is co-sponsoring a bill that ensures income earned from hedge funds and private equity investments is taxed more fairly (A.3554). Currently, this type of income is taxed at a reduced rate at both the federal and state levels. Steck’s bill would change the state tax rate to a more equitable one.

“It’s downright unfair that hedge fund managers are somehow entitled to a lower tax rate,” said Steck. “Along with the state millionaires tax, this bill is another crucial step toward easing the tax burdens on hardworking families in New York and making the wealthiest pay their fair share.”

Called the “carried interest tax loophole,” this provision of the current tax code allows hedge fund managers and private equity billionaires to declare a percentage of fees earned from investment management. This percentage ¬– called incentive fees because they reward hedge fund managers for their work – is considered capital gains, rather than income. This results in a lower tax rate – 20 percent as opposed to 39 percent. Roughly $3.7 billion a year could be added to New York’s tax revenue by closing the loophole on the state level, noted Steck.

The legislation introduced in New York, along with bills in Massachusetts, New Jersey and Connecticut, counters the federal tax rate on these funds, a rate that is unlikely to change in the near future. The legislation will only go into effect if corresponding legislation in these states is passed. Otherwise, Steck noted, fund managers might move to one of the neighboring states to avoid the tax.