White House Proposes Ending Tax Perk for Private Equity Managers

Overview

President Donald Trump has announced his intention to eliminate the tax loophole that private equity managers have enjoyed for over a decade, known as the carried interest provision. This measure could potentially reduce the federal deficit by $13 billion over the next decade.

Background

Under current law, private equity managers pay a lower tax rate on their share of profits because these returns are taxed as capital gains instead of normal employment income. This treatment has been criticized as unfair, as private equity managers often receive substantial compensation without assuming the same risks as other workers.

Trump's Proposal

Trump has stated that closing the carried interest loophole is a priority for his administration. The proposal would raise taxes on private equity managers, potentially generating significant revenue for the government.

Industry Opposition

The private equity industry has fiercely resisted previous attempts to abolish the carried interest loophole. They argue that the current tax treatment is appropriate for their "sweat equity" and that changing it would harm the industry.

Economic Impact

Proponents of closing the loophole argue that it would promote fairness and reduce the deficit. Opponents argue that it would discourage investment and harm economic growth.

Political Impact

Previous attempts to abolish the carried interest loophole have failed due to intense lobbying from the private equity industry. It remains to be seen whether Trump's proposal will gain sufficient support in Congress.

Key Players

Supporters: President Donald Trump, Treasury Secretary Scott Bessent

Opponents: Private equity managers, National Association of Manufacturers

Financial Impact

* The largest publicly traded private equity firms, such as Apollo Global Management Inc. and Blackstone Inc., have billions of dollars of investments eligible for carried interest.
* KKR reported $7.9 billion of gross unrealized carried interest in its investment funds in 2024.
* Apollo and Carlyle have changed their pay structures to allocate more carried interest to their investment professionals.

Key Points

* The carried interest loophole has been a contentious issue for decades.
* Trump's proposal to abolish it faces strong opposition from the private equity industry.
* The economic and political implications of the proposal remain uncertain.
* Vast sums of money are at stake if the loophole is closed.