President Donald Trump has revived calls to eliminate the carried interest tax deduction, a longstanding benefit cherished by hedge fund managers and private equity executives, according to a report by Bloomberg.
The report cites White House press secretary Karoline Leavitt as confirming on Thursday that the president is making the repeal of this tax break a priority in his broader tax reform agenda.
Speaking after a meeting with Republican lawmakers, Leavitt stated: “The president is committed to working with Congress to close the carried interest tax deduction loophole.” This measure, if implemented, would target the ability hedge fund managers and private equity fund managers to pay lower capital gains tax rates on their earnings, potentially reshaping the landscape of investment management taxation.
The carried interest loophole allows investment managers to classify their earnings as capital gains rather than regular income. This means they pay a 23.8% tax rate instead of higher rates that can reach nearly 40% for ordinary wages. The provision has been a flashpoint for critics who argue it unfairly benefits wealthy asset managers, including hedge funds and private equity firms.
Financial markets reacted swiftly to the news, with shares of private equity giants such as Apollo, KKR, and Blackstone falling on the announcement. These firms, along with the hedge fund industry, are expected to ramp up lobbying efforts to protect the tax break, which they argue supports long-term investments.
Drew Maloney, President of the American Investment Council, defended the status quo, stating that the current tax framework “struck the right balance” during the 2017 Tax Cuts and Jobs Act, which made only minor adjustments to carried interest rules. Maloney urged lawmakers to “keep this sound tax policy in place and unleash more long-term investment.”
However, the push to eliminate carried interest has garnered bipartisan support in the past, and Trump’s renewed focus on the issue could draw backing from Democrats. A new bill targeting carried interest was introduced on Thursday by Democratic Senator Tammy Baldwin and Representatives Marie Gluesenkamp Perez and Don Beyer, potentially building momentum for change.
Trump’s latest stance contrasts with his previous track record. During his 2016 campaign, he pledged to repeal carried interest but later softened his position, leaving the loophole largely intact in the 2017 tax overhaul.
In addition to targeting carried interest, Leavitt revealed that Trump wants to address other tax breaks, including those benefiting sports team owners and adjustments to the state and local tax (SALT) deduction.
