The Trump administration is signaling its commitment to close the carried-interest tax loophole as part of his effort to “Drain the Swamp” in Washington, D.C.
The carried-interest tax loophole allows hedge fund managers to pay taxes on their personal fund profits at the capital gains rate of 15 percent. Advocates on both sides of the aisle have called for hedge fund managers to pay a higher rate on those earnings.
Since the election, the President-elect and his tax adviser Steve Moore have been steadfast in their pursuit of closing the loophole.
“The hedge fund guys didn’t build this country,” President-elect Trump said on the campaign trail. “These are guys that shift paper around and they get lucky. The hedge fund guys are getting away with murder.”
Democratic Senate Minority Leader Chuck Schumer identified the carried-interest loophole as a point of potential cooperation between Trump and Senate Democrats.
Schumer said, “Surprisingly, on certain issues, candidate Trump voiced very progressive and populist opinions. For instance, getting rid of the carried interest loophole, changing our trade laws dramatically, a large infrastructure bill.”
“I hope on the promises he’s made to blue collar America on trade, on carried interest, on infrastructure, that he’ll stick with them and work with us, even if it means breaking with the Republicans who have always opposed these things,” Schumer said.
But Schumer is bending the truth. Republicans weren’t the ones who singlehandedly rescued the carried-interest loophole the last time it had a real chance to be destroyed. Schumer was. Schumer is one of the loophole’s biggest longtime defenders.
Schumer privately told hedge fund managers that he was going to block the capital gains tax hike when his own party tried to get it done back in 2007. At the time, the hedge fund industry was bankrolling Schumer’s Democratic Senatorial Campaign Committee to the tune of $1 million a month.
Here is the New York Times from July 30, 2007:
In June, senior House Democrats separately proposed raising the tax rate on the investment gains of fund managers — known as “carried interest” — to the ordinary income tax rate of as much as 35 percent, from the capital gains rate of 15 percent.
If adopted, the House proposal would more than double the tax rate for most of the compensation received by the partners at private equity and hedge funds and would raise billions of dollars annually in tax revenue.
Mr. Schumer discounted any suggestion that the campaign contributions from the industry had influenced his thinking, and said he had heard from industry executives who supported some of the proposals to raise their taxes. But interviews with people in and outside the industry indicate that there is overwhelming opposition to the measures and that any support from within the industry ranks is token.