The tax treatment of
so-called carried interest wouldn’t
change in the overhaul proposed by House Republicans, retaining a big
for private-equity and hedge-fund titans.
-- From early
in the 2016 presidential campaign, Donald Trump swore he’d do away with
so-called carried-interest loophole, the notorious tax break that
compensated private-equity managers, real estate investors and venture
to be taxed at a much lower rate than other professionals.
paying nothing, and it’s ridiculous,” Trump said in August 2016. “These
guys that shift paper around and they get lucky.” They were,
“getting away with murder.”
recently as late September, his chief economic adviser, ex-Goldman
executive Gary Cohn, insisted that the administration was set on
also referred to as the “hedge-fund loophole,” though hedge funds
it less than private-equity firms. “The president remains committed to
the carried interest deduction,” Cohn told
CNBC. “As we continue to evolve on the framework, the
president has made it
clear to the tax writers and Congress. Carried interest is one of those
loopholes that we talk about when we talk about getting rid of
affect wealthy Americans.”
the sweeping tax legislation released by House Republicans leaves the
of carried interest untouched.
preservation of the loophole is only the latest and starkest example of
policy that is increasingly attacked as unfair and unjustified by
both sides of the aisle has
managed to survive through the influence of its well-placed
it comes to the new tax bill, that influence surely included Stephen
Schwarzman, chief executive of the Blackstone Group, one of the largest
private-equity firms in the country. In 2010, when Congress, then
Democrats, came close to closing the loophole, Schwarzman compared the
to the Nazi invasion of Poland. (He later apologized.) Schwarzman alone
estimated to have saved close to $100 million per year as a
result of the
treatment of carried interest, which makes up the vast bulk of his
million annual income in recent years.
major longtime donor to Republican candidates, Schwarzman did not give
to Trump during the 2016 campaign, when Wall Street giving was in fact
tilted toward Hillary Clinton, even though she vowed
to go even further in closing the loophole than Trump did.
quickly emerged earlier this year as a leading
and highly influential advisor to Trump.
loophole dates to almost a century ago, in the tax treatment of profits
oil-drilling partnerships, but its cost to the Treasury has exploded
the past couple decades with the boom in the private equity industry.
who manage the investments in private-equity funds are typically
two different ways: with a 2 percent fee on the funds under management,
with a 20 percent cut of the gains they produce for investors — their
20 percent cut is taxed under the capital gains rate, which currently
to 23.8 percent for the wealthy, instead of at the top rate for
income, 39.6 percent, even though it is, essentially, part of the
that these investment managers are receiving for their labor, which is
other people’s money.
loophole has also been very valuable to partners in large-scale real
investment — such as Trump
himself. Estimates of the loophole’s total cost to the
Treasury range from $1
billion per year to more than $10 billion.
of the loophole — who reject even the term “loophole” — have long
applying the lower capital gains rate to carried interest justly
risk-taking involved in private-equity partnerships.
in recent years, even some people within the industry have grown more
their defense, as the loophole has become increasingly implicated in
incomes at the very top of the ladder.
instance, David Rubenstein, the co-founder of another very large
firm, the Carlyle Group, in recent years has shifted from explicitly
the loophole to rebuffing legislative attempts to close it by arguing
would be better addressed as part of comprehensive tax reform. “I don’t
anything will get done until comprehensive tax reform is discussed and
everything’s looked at,” Rubenstein told
this reporter in October 2015, at a New York event where he
honored for his philanthropy.
was an effective way to defer focused efforts to eliminate the tax
without appearing to defend it outright. And now a comprehensive tax
bill is finally on the table. And closing the loophole is not in it.
report originally ran at
ProPublica and is reprinted here with permission. ProPublica is a
news platform that produces investigative journalism in the public
was a recipient of the 2017 Pulitzer Prize for
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Pulitzer Prize for national reporting and a 2010 Pulitzer Prize for
April 10, 2017 ProPublica and the New York Daily News
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Tags: Trump administration, tax reform, Donald Trump, Goldman Sachs,
Group, Stephen Schwarzman, Donald Trump