Democratic Rep. Rahm Emanuel said yesterday he will draft a bill to close a loophole that allows private-equity and hedge-fund managers to defer taxes on income earned by funds abroad. Emanuel proposes to limit such tax deferrals to $19,500—the amount anyone can put into a retirement account tax-free. A Senate bill passed earlier this year included a cap of $1 million on deferrals.
The provision could end up in a larger bill aimed at changing several provision of the tax code that have allowed private-equity and hedge-fund managers to reap extraordinary profits. The most controversial proposal would reclassify managers' profits as income, rather than capital gains, thereby raising tax rates from 15% to as high as 35%.