Hedge Fund Tax Deductions Under Scrutiny: Trump Revives Effort to Close Carried Interest Loophole
Washington, D.C. - President Trump has reignited his campaign to eliminate a tax deduction that has benefited hedge fund managers. White House Press Secretary Karoline Leavitt announced the administration's intention to "close the carried interest tax deduction loophole" during a briefing on Thursday.
Background:
The carried interest deduction allows investment managers to pay a lower capital gains tax rate on income from compensation. This reduction benefits managers significantly, as capital gains rates can be substantially lower than income tax rates.
Political Implications:
Closing the loophole has long been a priority for Democrats. Democratic Senator Tammy Baldwin and Representatives Marie Gluesenkamp Perez and Don Beyer have recently introduced legislation on the matter. However, the proposal may face resistance from some Republicans. Senate Majority Leader John Thune has previously opposed similar efforts.
Industry Response:
The hedge fund industry and private equity firms have lobbied heavily to maintain the deduction. American Investment Council President Drew Maloney argued that the loophole "struck the right balance" in the 2017 Tax Cuts and Jobs Act.
Trump's Previous Promise:
Trump has previously campaigned on repealing the carried interest deduction but failed to do so during his first term. Critics have labeled the issue a "Promise Broken" based on Politifact's tracking of his commitments.
Additional Tax Proposals:
Leavitt also announced proposals to eliminate a tax break for sports team owners and to "adjust" the state and local tax (SALT) deduction.
Conclusion:
President Trump's renewed focus on closing the carried interest loophole is likely to ignite debate and lobbying efforts in the coming months. The outcome of these discussions will have significant implications for the hedge fund industry and the U.S. tax system.