With new stories of right and left wing activist groups literally fighting in the streets almost daily, and over the most asinine of reasons — like Ann Coulter (seriously, can you imagine getting your nose busted over the author of “E Pluribus Awesome?”) — now would seem to be the perfect time for some kind of broadly popular bipartisan measure, especially coming from a president people love to call a populist. People forget that “populism,” traditionally, occasionally involved egalitarianism, and not just railing against foreigners. And yet this past week, Donald Trump conspicuously failed to keep one of his only good campaign promises.
That promise was closing the carried interest loophole, which Trump frequently used as a cudgel against Hillary Clinton (this despite her claiming to support it also). That’s the part of the tax code that allows hedge fund managers, private equity, and venture capital firms, who receive a share of the profits on their clients’ investments, to treat their incomes as capital gains rather than income, paying the capital gains tax rate of 23.8 percent, rather than the top income tax rate of 39.6% that everyone else pays. It features nowhere in the tax plan the administration unveiled this week.
There are a lot of complicated ways to explain why it is or isn’t really a “loophole,” and you’ll find various Grovers Dorkquist defending it in tortured blog posts, but it’s one of those areas where none of the details change the rather obvious takeaway — that it allows some of the richest people in the country to pay one of the lowest tax rates. Which is why calls to end it have come from every class and end of the political spectrum. At a conference in Vegas last year, former Treasury Secretary Larry Summers said of carried interest, “Rarely has a policy existed so long with such weak arguments in its favor.”
Venture capitalist Alan Patricof, someone who famously benefits from the loophole, wrote an editorial in the New York Times last year arguing for its closure. “It is past time for fund managers like myself to accept the reality,” Patricof wrote. “We should not be receiving a tax break meant for investors when our work does not involve the risk of our own investment of capital.”
The change would affect about 60,000 households and raise between $2 and and $20 billion in yearly tax revenue. We’re not even talking the top 1%, that’s the top .0005%. Closing it is such a no-brainer, in fact, that Obama, Bernie Sanders, Donald Trump, Hillary Clinton, and even Jeb Bush, whose mother is a classy lady, all supported it during their campaigns.
As Donald Trump himself told Face The Nation, “The hedge fund guys are getting away with murder.” On the same show, he later promised that under a Trump presidency hedge fund managers “are going to be paying up.”