Latest news with #incomeTax
Yahoo
10 hours ago
- Business
- Yahoo
How Paychecks Would Look in Each State If Trump Dropped Federal Income Tax
While campaigning for the presidency, Donald Trump suggested abolishing the United States income tax in favor of an 'all tariff policy.' Despite the fact that many economists and policy experts have pushed back on the idea as unrealistic (due primarily to the fact that tariffs on imported goods won't generate enough revenue to replace income taxes), President Trump has continued to muse on the subject. Check Out: Learn More: Curious what your paycheck would look like if Trump nixed the federal income tax? Recently, GOBankingRates compiled data to determine what checks and income would look like, state by state. Median household income: $50,536 Total income taxes for single filer: $12,264 State income tax for single filer: $2,911 Bi-weekly check with all taxes: $1,472 Bi-weekly check with no federal tax: $1,832 Read Next: Discover More: Median household income: $77,640 Total income taxes for single filer: $17,434 State income tax for single filer: $0 Bi-weekly check with all taxes: $2,316 Bi-weekly check with no federal tax: $2,986 Find Out: Median household income: $58,945 Total income taxes for single filer: $14,819 State income tax for single filer: $1,557 Bi-weekly check with all taxes: $1,697 Bi-weekly check with no federal tax: $2,207 Median household income: $47,597 Total income taxes for single filer: $11,070 State income tax for single filer: $2,360 Bi-weekly check with all taxes: $1,405 Bi-weekly check with no federal tax: $1,740 Median household income: $73,235 Total income taxes for single filer: $23,902 State income tax for single filer: $5,113 Bi-weekly check with all taxes: $1,974 Bi-weekly check with no federal tax: $2,697 Median household income: $72,331 Total income taxes for single filer: $21,143 State income tax for single filer: $3,426 Bi-weekly check with all taxes: $1,969 Bi-weekly check with no federal tax: $2,650 Consider This: Median household income: $78,444 Total income taxes for single filer: $22,876 State income tax for single filer: $4,407 Bi-weekly check with all taxes: $2,137 Bi-weekly check with no federal tax: $2,848 Median household income: $68,287 Total income taxes for single filer: $19,530 State income tax for single filer: $4,237 Bi-weekly check with all taxes: $1,875 Bi-weekly check with no federal tax: $2,463 Median household income: $55,660 Total income taxes for single filer: $11,875 State income tax for single filer: $0 Bi-weekly check with all taxes: $1,684 Bi-weekly check with no federal tax: $2,141 Median household income: $58,700 Total income taxes for single filer: $16,198 State income tax for single filer: $3,440 Bi-weekly check with all taxes: $1,635 Bi-weekly check with no federal tax: $2,125 Find Out: Median household income: $81,275 Total income taxes for single filer: $26,872 State income tax for single filer: $7,183 Bi-weekly check with all taxes: $2,092 Bi-weekly check with no federal tax: $2,850 Median household income: $55,785 Total income taxes for single filer: $15,751 State income tax for single filer: $3,222 Bi-weekly check with all taxes: $1,540 Bi-weekly check with no federal tax: $2,022 Median household income: $65,886 Total income taxes for single filer: $18,899 State income tax for single filer: $4,044 Bi-weekly check with all taxes: $1,807 Bi-weekly check with no federal tax: $2,379 Median household income: $56,303 Total income taxes for single filer: $13,696 State income tax for single filer: $2,137 Bi-weekly check with all taxes: $1,639 Bi-weekly check with no federal tax: $2,083 Discover More: Median household income: $60,523 Total income taxes for single filer: $16,579 State income tax for single filer: $4,016 Bi-weekly check with all taxes: $1,690 Bi-weekly check with no federal tax: $2,173 Median household income: $59,597 Total income taxes for single filer: $15,864 State income tax for single filer: $3,483 Bi-weekly check with all taxes: $1,682 Bi-weekly check with no federal tax: $2,158 Median household income: $50,589 Total income taxes for single filer: $11,813 State income tax for single filer: $2,370 Bi-weekly check with all taxes: $1,491 Bi-weekly check with no federal tax: $1,855 Median household income: $49,469 Total income taxes for single filer: $10,973 State income tax for single filer: $1,970 Bi-weekly check with all taxes: $1,481 Bi-weekly check with no federal tax: $1,827 Read Next: Median household income: $57,918 Total income taxes for single filer: $15,674 State income tax for single filer: $3,612 Bi-weekly check with all taxes: $1,625 Bi-weekly check with no federal tax: $2,089 Median household income: $84,805 Total income taxes for single filer: $25,347 State income tax for single filer: $4,655 Bi-weekly check with all taxes: $2,287 Bi-weekly check with no federal tax: $3,083 Median household income: $81,215 Total income taxes for single filer: $25,416 State income tax for single filer: $5,067 Bi-weekly check with all taxes: $2,146 Bi-weekly check with no federal tax: $2,929 Median household income: $57,144 Total income taxes for single filer: $14,890 State income tax for single filer: $3,024 Bi-weekly check with all taxes: $1,625 Bi-weekly check with no federal tax: $2,082 Try This: Median household income: $71,306 Total income taxes for single filer: $21,061 State income tax for single filer: $4,503 Bi-weekly check with all taxes: $1,933 Bi-weekly check with no federal tax: $2,569 Median household income: $45,081 Total income taxes for single filer: $10,058 State income tax for single filer: $2,003 Bi-weekly check with all taxes: $1,347 Bi-weekly check with no federal tax: $1,657 Median household income: $55,461 Total income taxes for single filer: $13,674 State income tax for single filer: $2,428 Bi-weekly check with all taxes: $1,607 Bi-weekly check with no federal tax: $2,040 Median household income: $54,970 Total income taxes for single filer: $14,447 State income tax for single filer: $3,018 Bi-weekly check with all taxes: $1,559 Bi-weekly check with no federal tax: $1,998 Learn More: Median household income: $61,439 Total income taxes for single filer: $16,288 State income tax for single filer: $3,250 Bi-weekly check with all taxes: $1,737 Bi-weekly check with no federal tax: $2,238 Median household income: $60,365 Total income taxes for single filer: $13,082 State income tax for single filer: $0 Bi-weekly check with all taxes: $1,819 Bi-weekly check with no federal tax: $2,322 Median household income: $76,768 Total income taxes for single filer: $18,752 State income tax for single filer: $0 Bi-weekly check with all taxes: $2,231 Bi-weekly check with no federal tax: $2,953 Median household income: $82,545 Total income taxes for single filer: $24,699 State income tax for single filer: $4,312 Bi-weekly check with all taxes: $2,225 Bi-weekly check with no federal tax: $3,009 Trending Now: Median household income: $49,754 Total income taxes for single filer: $11,364 State income tax for single filer: $2,049 Bi-weekly check with all taxes: $1,477 Bi-weekly check with no federal tax: $1,835 Median household income: $68,486 Total income taxes for single filer: $19,734 State income tax for single filer: $4,047 Bi-weekly check with all taxes: $1,875 Bi-weekly check with no federal tax: $2,478 Median household income: $54,602 Total income taxes for single filer: $13,969 State income tax for single filer: $2,572 Bi-weekly check with all taxes: $1,563 Bi-weekly check with no federal tax: $2,001 Median household income: $64,894 Total income taxes for single filer: $13,838 State income tax for single filer: $324 Bi-weekly check with all taxes: $1,964 Bi-weekly check with no federal tax: $2,483 Consider This: Median household income: $56,602 Total income taxes for single filer: $12,701 State income tax for single filer: $1,200 Bi-weekly check with all taxes: $1,688 Bi-weekly check with no federal tax: $2,131 Median household income: $52,919 Total income taxes for single filer: $12,413 State income tax for single filer: $2,531 Bi-weekly check with all taxes: $1,558 Bi-weekly check with no federal tax: $1,938 Median household income: $62,818 Total income taxes for single filer: $20,837 State income tax for single filer: $6,496 Bi-weekly check with all taxes: $1,615 Bi-weekly check with no federal tax: $2,166 Median household income: $61,744 Total income taxes for single filer: $15,638 State income tax for single filer: $2,336 Bi-weekly check with all taxes: $1,773 Bi-weekly check with no federal tax: $2,285 Find Out: Median household income: $67,167 Total income taxes for single filer: $18,824 State income tax for single filer: $2,843 Bi-weekly check with all taxes: $1,859 Bi-weekly check with no federal tax: $2,474 Median household income: $53,199 Total income taxes for single filer: $13,260 State income tax for single filer: $2,649 Bi-weekly check with all taxes: $1,536 Bi-weekly check with no federal tax: $1,944 Median household income: $58,275 Total income taxes for single filer: $12,232 State income tax for single filer: $0 Bi-weekly check with all taxes: $1,771 Bi-weekly check with no federal tax: $2,241 Median household income: $53,320 Total income taxes for single filer: $10,681 State income tax for single filer: $0 Bi-weekly check with all taxes: $1,640 Bi-weekly check with no federal tax: $2,051 For You: Median household income: $61,874 Total income taxes for single filer: $13,358 State income tax for single filer: $0 Bi-weekly check with all taxes: $1,866 Bi-weekly check with no federal tax: $2,380 Median household income: $71,621 Total income taxes for single filer: $21,731 State income tax for single filer: $4,226 Bi-weekly check with all taxes: $1,919 Bi-weekly check with no federal tax: $2,592 Median household income: $61,973 Total income taxes for single filer: $16,959 State income tax for single filer: $3,212 Bi-weekly check with all taxes: $1,731 Bi-weekly check with no federal tax: $2,260 Median household income: $74,222 Total income taxes for single filer: $22,047 State income tax for single filer: $4,514 Bi-weekly check with all taxes: $2,007 Bi-weekly check with no federal tax: $2,681 Read More: Median household income: $73,775 Total income taxes for single filer: $18,374 State income tax for single filer: $0 Bi-weekly check with all taxes: $2,131 Bi-weekly check with no federal tax: $2,838 Median household income: $46,711 Total income taxes for single filer: $10,624 State income tax for single filer: $2,085 Bi-weekly check with all taxes: $1,388 Bi-weekly check with no federal tax: $1,716 Median household income: $61,747 Total income taxes for single filer: $16,130 State income tax for single filer: $2,918 Bi-weekly check with all taxes: $1,755 Bi-weekly check with no federal tax: $2,263 Median household income: $64,049 Total income taxes for single filer: $13,200 State income tax for single filer: $0 Bi-weekly check with all taxes: $1,956 Bi-weekly check with no federal tax: $2,463 Methodology: To generate the income tax for every state, GOBankingRates first found incomes based on 2023 American Community Survey median household figures and income tax estimates using an in-house calculator for a person a single filer and using the standard deduction (with 2024 tax brackets). Once the income taxes (federal and state) were calculated as an annual amount, GOBankingRates found each state's (1) total annual income taxes paid, (2) total income tax burden, (3) amount taken out of bi-weekly paycheck and (4) bi-weekly paycheck amount. GOBankingRates then took these figures and removed the federal income taxes (including FICA) to see what paychecks would look like by state without federal income taxes. All data was collected on and is up to date as of Feb. 4, 2025. More From GOBankingRates 4 Affordable Car Brands You Won't Regret Buying in 2025 This article originally appeared on How Paychecks Would Look in Each State If Trump Dropped Federal Income Tax Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
The Sun
13 hours ago
- Business
- The Sun
How to legally avoid paying tax on your pension as millions hit with shock bills
MILLIONS of retirees have been hit with shock tax bills after their state pension payments increased. Around 904,000 people on the state pension are now paying income tax at 40%, according to data obtained from HM Revenue and Customs in a freedom of information request. Meanwhile, 124,000 retirees are now paying the tax at an eye-watering 45%. The new state pension rose to £11,973 a year in April, putting it within touching distance of the £12,570 income tax threshold. But some pensioners receive more than this amount each year because they delayed the date at which they started to claim the payments. Pensioners who get income from a private pension could also find themselves pushed over this threshold. Income tax thresholds are frozen until April 2028, which means that more people could find themselves dragged into higher tax bands through a concept called fiscal drag. The higher rate tax band is frozen at £50,270, which means any earnings over this amount are taxed at 40%. Meanwhile, the additional rate tax band is fixed at £125,140, beyond which any earnings are taxed at 45%. But there are things you can do to stop a surprise tax bill landing on your doorstep. Here we explain how you can avoid the tax trap. Time your tax free withdrawals You can withdraw up to 25% of your pension pot tax free when you first retire. How to track down lost pensions worth £1,000s However, you need to pay tax on any money you withdraw beyond this. Any money you withdraw is added to the other income you receive, which could push you into a higher tax bracket. One way to avoid this is to spread out your withdrawals over several years, suggests Andrew Oxlade, investment director at Fidelity International. He said: 'If you do take a portion of the 25% tax-free sum every year, that income, along with income from Isas and your state pension, could be enough to keep taxable withdrawals from your pension below the higher-rate threshold.' How does the state pension work? AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046. The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age. But not everyone gets the same amount, and you are awarded depending on your National Insurance record. For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings. The new state pension is based on people's National Insurance records. Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension. You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit. If you have gaps, you can top up your record by paying in voluntary National Insurance contributions. To get the old, full basic state pension, you will need 30 years of contributions or credits. You will need at least 10 years on your NI record to get any state pension. He adds that this could be a particularly good idea for people who do not have a particular use in mind for their tax-free sum, such as paying off their mortgage. Andrew recommends that you add up your income from other sources and take the exact amount that will keep your total income below the tax threshold. Avoid emergency tax Once you have withdrawn the tax-free portion of your pension pot you will need to pay tax on any money you take out. When this happens, many savers are put on an emergency tax code. This happens because HMRC does not have an up to date tax code for you, so as a default it charges a higher estimated rate. You may then receive an unexpected tax bill and it can take months to get the money back. One way to avoid this is to take just £1 from your pension pot, which will trigger a tax code from HMRC. What are the different types of pensions? WE round-up the main types of pension and how they differ: Personal pension or self-invested personal pension (SIPP) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest. Workplace pension - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. Final salary pension - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore. New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all. Basic state pension - If you reach the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £156.20 per week and you'll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes. Once you have the code you can withdraw money from your pot and will be charged at the correct rate. Check your pension provider's rules to make sure it will allow you to withdraw such a small sum of money. Use your Isa Isas are a great way to top up your income without paying any tax. This is because all money you withdraw from an Isa is tax-free, so it does not count towards your taxable income. To make use of them just make sure you withdraw less than £50,271 from your private pension. You can then top up your income with money from an Isa. Or if you do not want to pay any tax then simply claim your state pension and withdraw any extra money you need from your Isa. Pay into your pot If you are still working when you start to receive the state pension then you will be able to benefit from a tax loophole. This is because you can still pay into your private pension even if you are above the state pension age, which is currently 66. Robert Cochran, retirement expert at Scottish Widows, explains: 'This can be especially beneficial if your pension income pushes you into a higher tax bracket. 'Contributions may reduce your taxable income and bring you back into a lower band.' The maximum amount that you can pay into your pension once you are above the state pension age is £10,000. This can have a significant impact on the tax you need to pay. For example, if you earned £10,000 from your job and received the full new state pension then your total income would be £21,973 a year. In total, you would pay £1,878.80 in income tax. But if you paid the money from your job into your private pension then you would not pay any tax. Make use of marriage allowance You may also be able to save on your tax bill if you are married or in a civil partnership. Depending on how much you earn, you may be able to transfer some of your personal allowance to your partner. This tax perk is called marriage tax allowance. You can transfer up to £1,260 of your personal allowance to your husband, wife or civil partner. Doing so reduces your tax bill by up to £252 a year. To benefit you need to be earning less than your personal allowance, which is £12,570. Meanwhile, your partner must earn less than £50,270. website. .
Yahoo
4 days ago
- Business
- Yahoo
Revealed: how much the highest earners pay towards Britain's benefits bill
Britain's ballooning welfare state bill is costing the top 10pc of earners at least £6,281 a year each, Telegraph analysis shows. Almost a third of all income tax revenue and National Insurance contributions are being spent servicing the nation's benefits bill. Welfare spending totalled £296bn in 2023-24, the last year for available data, an increase of £86bn compared to a decade ago. Analysis by The Telegraph shows a worker earning £72,150 a year, equivalent to being in the top 10pc of earners, pays £19,746 in income tax and National Insurance. Of this, £6,281 – or 32pc – is spent on welfare benefits. The majority (£2,553) goes towards the state pension and other old-age benefits. But a similar amount (£2,247) is spent on unemployment benefits in the form of Universal Credit and disability benefits such as Personal Independence Payments (PIP). PIP is the main non-means-tested benefit for those with health conditions or disabilities, with payments of up to £9,500 a year to help people with living costs and getting around. However, the cost of the benefit has spiralled since lockdown, and is on course to climb from £15bn in 2019-20 to £36bn in real terms by the end of the current Parliament. Mel Stride, the shadow chancellor, told The Telegraph: 'Our welfare system is on a path to becoming completely unsustainable and Labour are asleep at the wheel. Since the pandemic we've seen a particularly steep rise in the numbers of people on benefits for health problems or disabilities, and it is set to continue spiralling higher still. 'We need fundamental reform to get the bill down and move people off welfare and into jobs. Without radical action the burden on taxpayers will only continue to rise.' The Telegraph's data relates to spending made in the 2023-24 financial year based on analysis by the Institute for Fiscal Studies. It also found the median full-time worker, earning £38,000 a year, pays £2,265 in taxes towards benefits. Their taxes contribute a further £1,455 towards the NHS and £817 is spent paying off the interest on the Government's £2.7 trillion worth of debt. For an additional rate taxpayer earning £125,140 a year, almost £15,000 (£14,960) of their income goes towards the welfare state and £10,000 (£9,608) is spent on the NHS. The Office for Budget Responsibility has forecasted welfare spending will total £378bn by the end of the decade. However, this calculation was made prior to Sir Keir Starmer's £5bn about-turn last week when he decided to reinstate the winter fuel allowance for most pensioners amid growing anger from his backbench MPs and Labour's dismal performance in this month's local elections. Reinstating the pensioner benefit will cost the Treasury £1.5bn. The Prime Minister is also considering axing the two-child benefit cap, which would cost the Treasury another £3.5bn. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
Telegraph
4 days ago
- Business
- Telegraph
Revealed: how much the highest earners pay towards Britain's benefits bill
Britain's ballooning welfare state bill is costing the top 10pc of earners at least £6,281 a year each, Telegraph analysis shows. Almost a third of all income tax revenue and National Insurance contributions are being spent servicing the nation's benefits bill. Welfare spending totalled £296bn in 2023-24, the last year for available data, an increase of £86bn compared to a decade ago. Analysis by The Telegraph shows a worker earning £72,150 a year, equivalent to being in the top 10pc of earners, pays £19,746 in income tax and National Insurance. Of this, £6,281 – or 32pc – is spent on welfare benefits. The majority (£2,553) goes towards the state pension and other old-age benefits. But a similar amount (£2,247) is spent on unemployment benefits in the form of Universal Credit and disability benefits such as Personal Independence Payments (PIP). PIP is the main non-means-tested benefit for those with health conditions or disabilities, with payments of up to £9,500 a year to help people with living costs and getting around. However, the cost of the benefit has spiralled since lockdown, and is on course to climb from £15bn in 2019-20 to £36bn in real terms by the end of the current Parliament. Mel Stride, the shadow chancellor, told The Telegraph: 'Our welfare system is on a path to becoming completely unsustainable and Labour are asleep at the wheel. Since the pandemic we've seen a particularly steep rise in the numbers of people on benefits for health problems or disabilities, and it is set to continue spiralling higher still. 'We need fundamental reform to get the bill down and move people off welfare and into jobs. Without radical action the burden on taxpayers will only continue to rise.' The Telegraph's data relates to spending made in the 2023-24 financial year based on analysis by the Institute for Fiscal Studies. It also found the median full-time worker, earning £38,000 a year, pays £2,265 in taxes towards benefits. Their taxes contribute a further £1,455 towards the NHS and £817 is spent paying off the interest on the Government's £2.7 trillion worth of debt. For an additional rate taxpayer earning £125,140 a year, almost £15,000 (£14,960) of their income goes towards the welfare state and £10,000 (£9,608) is spent on the NHS. The Office for Budget Responsibility has forecasted welfare spending will total £378bn by the end of the decade. However, this calculation was made prior to Sir Keir Starmer's £5bn about-turn last week when he decided to reinstate the winter fuel allowance for most pensioners amid growing anger from his backbench MPs and Labour's dismal performance in this month's local elections. Reinstating the pensioner benefit will cost the Treasury £1.5bn. The Prime Minister is also considering axing the two-child benefit cap, which would cost the Treasury another £3.5bn.
Forbes
5 days ago
- Business
- Forbes
Investment Income Tax Developments In Washington & The States
The move toward lower and flatter personal income tax rates is persisting as a dominant state policy trend in 2025. Mississippi Governor Tate Reeves (R-Miss.) and Oklahoma Governor Kevin Stitt (R-Okla.) enacted legislation this spring to phase out their income taxes in the coming years, while Governor Greg Gianforte (R-Mt.) signed into law the largest income tax cut in Montana's history. This year, however, state lawmakers have also made strides when it comes to reducing and repealing taxes on investment income. In Missouri, for example, Governor Mike Kehoe (R-Mo.) is preparing to sign a bill passed by legislators in April that will eliminate Missouri's capital gains tax. 'Once Gov. Mike Kehoe, who has reportedly expressed strong support for the idea, signs the bill, Missouri will become the first state in the nation to fully exempt profits from the sale of stocks, real estate, cryptocurrency, and other capital assets from state income tax,' Kiplinger reported in early May. 'Proponents argue the move will encourage investment in The Show-Me State and potentially spur job creation and economic growth.' 'This legislation is about creating a fairer tax system that supports growth and empowers individuals to keep more of their hard-earned money,' said Missouri Speaker Pro Tem Chad Perkins (R). 'I firmly believe this bill will have a great positive impact on our state's economy and the financial well-being of our citizens.' Representative George Hruza (R), who cosponsored the capital gains repeal bill with Representative Perkins, said the move will 'turbocharge Missouri's economy.' Days after Missouri lawmakers voted to repeal their capital gains tax, Governor Greg Abbott (R-Texas) approved a constitutional amendment that would prohibit the imposition of a capital gains tax in the Lone Star State. Texas, one of eight no-income-tax states, already has a constitutional prohibition on taxing wages. 'Voters will vote on this to ensure that we're not going to have a capital gains tax in Texas,' Governor Abbott said on May 14 immediately after signing the joint resolution to refer the capital gains tax prohibition to the ballot. 'The next tax law that I will sign will be a tax law to reduce your property taxes in Texas.' Recent developments in Texas and Missouri follow the completion in recent years of investment income tax phaseouts in Tennessee and New Hampshire. While state lawmakers have had success when it comes to improving the tax treatment of investment income, Republicans in Congress have faced pressure to raise federal tax rates on capital gains, namely in the form of a tax hike on what's referred to as 'carried interest.' Carried interest, a form of capital gain, refers to the share of a private equity fund's return on investment that is paid out to fund managers. The U.S. House passed a tax bill last week that will ensure the income tax rate cuts enacted as part of 2017's Tax Cuts and Jobs Act (TCJA), which provided a net tax cut to the vast majority of households, do not expire at the end of the year. As the debate moves over to the Senate, President Donald Trump (R), Speaker Mike Johnson (R-La.), and congressional Republicans are saying they would like to enact the tax bill before the Fourth of July. Despite pressure to 'pay for' maintenance of current federal income tax rates with offsetting tax hikes, the House-passed budget reconciliation package does not raise taxes on carried interest. House Republicans' rejection of calls for a carried interest tax hike is a relief to many of those who are concerned that such a tax hike, aside from direct adverse effects, would serve as the camel's nose under the tent in a longer term effort to raise rates on all capital gains. 'Democrats not only want to tax capital gains at ordinary income tax rates—over 40% all-in federally—they want this tax rate to apply to phantom gains derived merely from price inflation,' says Ryan Ellis, president of the Center for a Free Economy and an IRS-enrolled agent in charge of a tax preparation firm. 'It's gets worse, as some of them even want to tax gains before they are gains, before an investor sells.' Many progressives in Congress don't like that capital gains are taxed at a lower rate than wage income. Though passing a capital gains tax increase would be a heavy lift even in a Democrat-led federal government, politicians on both sides of the aisle have expressed interest in singling out carried interest as special form of capital gain that should be taxed at a higher rate. With the rising tide of populism, many Republicans across the country have increasingly taken to demonization of banks, hedge funds, private equity firms, and large companies in general. Yet, by targeting private equity with more punitive tax rates, Congress would end up harming the retirement plans for millions of public sector workers in nearly every state. In February, for example, the South Carolina Retirement System Investment Commission allocated $260 million to private equity funds. Public pension investment in private equity is not unique to South Carolina or to only red states. In fact, public pension funds in most states have made similar investments in private equity. Governor Tim Walz (D-Minn.), for example, has 17% of Minnesota's combined pension funds invested in private equity. The belief that raising taxes on carried interest would be economically harmful is not limited to columnists, policy analysts, and those who work in private equity. It's also shared by leaders on Capitol Hill and key members of the Trump administration. 'Private equity is growing our economy and boosting the retirement savings of working Americans,' said Senator Tommy Tuberville (R-Ala.). 'Jacking up taxes on carried interest will kill the goose that laid the golden egg.' Kevin Hassett, director of the White House National Economic Council, discussed the adverse effects that would come with a tax hike on carried interest in a 2010 policy brief for the American Enterprise Institute. In that brief, Hassett wrote that a tax hike on carried interest 'would be unwise to adopt' and that 'there is no compelling case that it will produce a more efficient allocation of capital.' Many believe the Tax Cuts and Jobs Act took the right approach to carried interest. The TCJA did not raise the tax rate on carried interest, but increased the timeline for investment after which the capital gains tax rate would apply. 'President Trump's tax law struck the right balance in 2017,' says Drew Maloney, president and CEO of the American Investment Council. 'A new 40.8% tax rate would be higher than China, Europe and Canada and would make the U.S. less competitive.' Critics of raising taxes on carried interest point out that higher tax rates on carried interest mean less capital to invest in the U.S., harming the overall economy. A 2022 Ernst & Young report estimated private equity's entire contribution to the domestic economy: 'In total, the US private equity sector, the sector's US suppliers, and the related US consumer spending supported an estimated 31.3 million workers earning $2.4 trillion in wages and benefits and generating $4.0 trillion in US GDP in 2022. PE-backed small businesses, their suppliers, and related consumer spending (i.e., a subset of this) together supported 4.4 million workers earning $360 billion in wages and benefits and generating $615 billion GDP. Additionally, the federal, state, and local taxes paid by, and related to, the US private equity sector totaled more than $700 billion in 2022.' Sen. Tim Scott (R-S.C.), a member of the Finance Committee, said he is 'excited about the future of private equity in South Carolina.' One thing that could curb that excitement is a tax hike on carried interest. Furthermore, for governors and legislators who have have been working hard to make their tax codes more conducive to investment, a federal tax hike on investment or wage income would counteract the benefits of pro-growth state reforms. Senator Scott and his colleagues, however, will soon have the opportunity to take federal tax threats off the table when they take up the House-passed tax bill.
