Almost a month has passed since President Trump last publicly mentioned his intention to eliminate the carried interest loophole. Despite this, the private equity industry is still preparing for a potential battle as the president considers upending this tax break.
This represents the most significant challenge to the provision since it was nearly eliminated three years ago under former President Joe Biden, according to Grady McGregor’s report for DealBook.
To recap, the carried interest rule allows executives at hedge funds, private equity, and venture capital firms to pay a tax rate of around 20% on their profits, a rate that has drawn criticism from figures like Warren Buffett and Senator Elizabeth Warren.
A Washington lawyer described the lobbying effort to DealBook as “significant,” signaling the increasing stakes involved.
In the past month: The American Investment Council, a private equity lobbying group, is circulating memos on Capitol Hill emphasizing private equity’s role as a job creator. Venture capitalists are frustrated with having to repeatedly educate lawmakers on the benefits of the rule. At the same time, free-market groups are united in urging Congress to maintain the current status quo.
“They’ll fight tooth-and-nail against any change,” said Jessica Millett, a tax partner at Hogan Lovells.
The carried interest lobby consists of influential real estate, venture capital, and private equity groups, such as Blackstone and the Carlyle Group. These groups have long defended the carried interest loophole.
“It’s a perennial point of contention for these trade groups,” noted Jonathan Choi, a law professor at the University of Southern California, in an interview with DealBook.
What sets this apart: The seriousness of Trump’s intentions regarding the loophole is unclear. While he has voiced opposition to carried interest in the past, it remains to be seen how committed he is to eliminating it.
Looking at the numbers: Abolishing carried interest could save the government an estimated $14 billion over a decade, according to the nonpartisan Congressional Budget Office. Trump is seeking larger savings to pass his ambitious tax bill without increasing the deficit.
In his 2017 tax bill, Trump initially aimed to eliminate carried interest but faced opposition from lobbyists and Republican lawmakers, leading him to abandon the effort, as noted by Victor Fleischer, a law professor at the University of California, Irvine.
There are indications that Trump’s current stance may be more serious than in 2017, as suggested by signals coming from the White House that some Democrats are picking up on. This diversion from Republican lawmakers on carried interest is a rare point of disagreement between Trump and his party.
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