As the Trump administration focuses on budgetary and tax concerns in Washington, the carried interest tax break is again capturing increasing attention. This long-standing tax benefit has traditionally benefited the private equity world, allowing investment managers to pay a lower capital gains tax rate on their share of profits, known as carried interest, rather than the higher ordinary income tax rate. With the new administration’s expressed interest in reform, the potential elimination of this tax break could soon become a reality.
In 2017, the Trump administration attempted to eliminate the carried interest in its tax bill. It ultimately backed off from that position because of meaningful lobbying from private equity firms and congressional opposition. Today, lobbying groups fighting this outcome, including the Carlyle Group, Blackstone, and the Real Estate Roundtable, remain as strong as ever and are already mounting their opposition efforts to “defend their favorite loophole.”
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