Let's Fix This Country
tax notes

Trump Would Rather We Forget This Promise

"I would take carried interest out and I would let people that are making hundreds of millions of dollars a year pay tax, because right now they are paying very little tax and I think it's outrageous".

That was Donald Trump in 2015 when he hadn't quite become a Republican.

Carried interest is a preferential tax treatment that approximately cuts in half the taxes those who run the likes of hedge funds and private equity partnerships must pay. It is a glaring iniquity favoring the donor class that rewards politicians for their inaction.

The name doesn't fit the times. It dates from 16th Century Venice when ship captains transporting cargo had an interest in and took a 20% cut of whatever they carried. The gaping loophole today is that when managers take their 20% cut of the proceeds recorded by their funds, that income is taxed as a capital gain, the rate for which is as little as 23.8% instead of the standard personal income rate of as much as 39.6%. What's wrong with that is that the manager has likely invested none of his or her own money, was never at risk, and has done nothing to deserve the special rate. Their payout is just compensation for doing a job.

"Hedge fund guys are getting away with murder", Trump has said, but nothing was done to get rid of carried interest in the tax reform plan that was supposed to get rid of loopholes. "Why didn't you change it when you were a senator", Trump challenged Hillary Clinton in one of the debates. Her reply had him pegged:

"I'll tell you what he's going to do. His plan will give the wealthy and corporations the biggest tax cuts they've ever had, and this would be a massive gift".

A fix for carried interest was never in either the House or Senate bills. Now that the president has signed a bill that gives his flow-through income a 20% haircut (see main story) almost matching the hedge fund discount, we doubt we'll see him tweet about carried interest any further.

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