Tax Cuts in Focus: Trump Targets Hedge Fund Deduction
Washington, D.C. - President Trump outlined tax priorities to Republican lawmakers, including the closure of the carried interest tax deduction loophole. This move would align with some Democratic priorities but face skepticism from within the GOP.
The carried interest deduction allows investment managers to pay a lower capital gains tax rate on their compensation. It can lead to significant savings, as capital gains are typically taxed at 23.8%, while regular wage income is taxed at higher rates.
Private equity firms and hedge funds have benefited from this deduction, but it has drawn criticism for creating a tax advantage for the wealthy.
Trump's previous attempts to repeal the loophole have been unsuccessful. However, the current Democratic-controlled Senate may provide an opportunity to pass legislation.
Reaction:
Democratic Senator Tammy Baldwin welcomed Trump's focus on the issue, calling for immediate action. However, Republican Senator John Thune has previously opposed efforts to close the loophole.
The hedge fund industry and private equity firms are expected to lobby strongly against any such legislation.
Impact on Markets:
News of Trump's remarks led to a drop in share prices for Apollo Global Management (APO), KKR (KKR), and Blackstone (BX).