Maryland may become the first state to unilaterally change the tax treatment of carried interest, the investment profits earned by managers of venture capital, hedge, and private equity funds.

Driving the news: The bill, introduced in late January by 19 Democratic co-sponsors, would introduce a 17% tax on carried interest earned by those filing in Maryland. Currently, such carried interest is taxed at the state's 5.75% capital gains rate. Maryland Gov. Larry Hogan, a Republican, has not yet taken a position on the bill.

The proposal, which you can read here, closely mirrors a similar bill that passed last year in New Jersey. For example, both undercut their "fairness" argument by exempting real estate investments.

One big difference is that New Jersey's tax increase only goes into effect if similar statutes are passed in Connecticut, Massachusetts, and New York — in an effort to prevent New Jersey-based firms from relocating. So far, that hasn't happened.

  • Maryland's proposal doesn't need require buy-in for bordering states, nor from the District of Columbia.
  • This could become a significant challenge, if passed, given that so many Maryland venture and buyout firms are located in the D.C. area, and could relocate without causing their employees much inconvenience. A senior executive with one such Maryland firm already told me that his shop would almost certainly pick up and head a few Metro stops south.

Carried interest is arguably a fee for services — profits earned from investing someone else's money — and should be taxed as ordinary income. In fact, that's one of the few areas of agreement on tax policy between Presidents Trump and Obama, even though neither of them got it changed at the federal level (thanks, in part, to lobbying by private equity).

  • As such, Maryland's legislative heart is in the right place here.
  • It's head, however, is a bit tilted. Not only because of the real estate carve-out and disinterest in regional consensus, but also because this would turn carried interest into its own (much) higher tax category, rather than just lumping it into ordinary income.

The hope, therefore, should be that whatever the Democrat-controlled legislature sends to Maryland's Republican governor will be tightened up.

Go deeper

Coronavirus cases rise in 22 states

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Data: The COVID Tracking Project, state health departments; Map: Andrew Witherspoon, Sara Wise/Axios

The coronavirus is surging once again across the U.S., with cases rising in 22 states over the past week.

The big picture: There isn't one big event or sudden occurrence that explains this increase. We simply have never done a very good job containing the virus, despite losing 200,000 lives in just the past six months, and this is what that persistent failure looks like.

Updated 1 hour ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 3:30 a.m. ET: 31,870,904 — Total deaths: 976,311 — Total recoveries: 21,979,888Map.
  2. U.S.: Total confirmed cases as of 3:30 a.m ET: 6,934,205 — Total deaths: 201,909 — Total recoveries: 2,670,256 — Total tests: 97,459,742Map.
  3. Health: CDC director says over 90% of Americans have not yet been exposed to coronavirus — Supply shortages continue to plague testing.
  4. Politics: Missouri Gov. Mike Parson tests positive for coronavirus — Poll says 51% of Republicans trust Trump on coronavirus more than the CDC.
  5. Technology: The tech solutions of 2020 may be sapping our resolve to beat the coronavirus
  6. Vaccines: Johnson & Johnson begins large phase 3 trial — The FDA plans to toughen standards.
  7. World: Justin Trudeau says Canada's second wave has begun
  8. Future: America's halfway coronavirus response

Two officers shot in Louisville amid Breonna Taylor protests

Police officers stand guard during a protest in Louisville, Kentucky. Photo: Ben Hendren/Anadolu Agency via Getty Images

Louisville Metro Police Department said two officers were shot downtown in the Kentucky city late Wednesday, hours after a grand jury announced an indictment in the Breonna Taylor case.

Details: A police spokesperson told a press briefing a suspect was in custody and that the injuries of both officers were not life-threatening. One officer was "alert and stable" and the other was undergoing surgery, he said.

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