Dems, millionaires group press Trump on tax break for investment fund managers

Dems, millionaires group press Trump on tax break for investment fund managers
© Haiyun Jiang

Democratic lawmakers and a group of millionaires are pressing President Trump on his vow to end the “carried interest” tax break that benefits investment fund managers.

“Mr. President, keep your promise to get rid of the carried interest loophole, and don’t make it worse by having a bigger, bigger, bigger loophole for all the wealthy people and corporations in the United States," Rep. Sandy Levin (D-Mich.) said at a press conference Tuesday.

Carried interest is the income that investment fund managers receive for managing client funds. Under current law, carried interest is taxed at the lower capital gains rate of 20 percent, rather than as ordinary income, which can be taxed as high as 39.6 percent.

ADVERTISEMENT
Trump repeatedly promised to repeal the carried interest tax break during the campaign. The one-page tax plan the White House released last week did not explicitly mention carried interest, but Trump told CBS’s “Face the Nation” over the weekend that the tax break would be “gone.”

However, Democrats worry that Trump’s tax plan would actually end up lowering taxes on investment fund managers even further. The plan would reduce the tax rate for income from "pass-through" businesses to 15 percent, so it’s possible that carried interest would be taxed at a lower rate than it is currently, even if it is treated as ordinary income.

“President Trump is engaged in a classic Washington game of bait-and-switch, and the hedge funders on Wall Street, they love it,” said Sen. Tammy BaldwinTammy Suzanne BaldwinSenate Dems build huge cash edge in battlegrounds Overnight Health Care: Over 7,000 fail to meet Medicaid work rules in Arkansas | Judge temporarily halts deportations of reunited families | GOP chair in talks over restarting ObamaCare payments Dem senator calls for 'permanent' price cuts at Pfizer MORE (D-Wis.).

Baldwin and Levin on Wednesday reintroduced legislation that would tax carried interest as ordinary income while leaving the tax rates for pass-through businesses unchanged. The Joint Committee on Taxation has estimated that the bill would raise more than $15 billion over a decade.

The Democratic lawmakers’ effort has the support of Wall Street reform groups and the Patriotic Millionaires — a group of high net worth individuals who want wealthy people to pay a greater percentage of taxes.

Patriotic Millionaires Chairman Morris Pearl warned Trump: “If you do not plan to close this loophole, we’ll spend the next four years making sure the voters know that you refused to keep your promise that you made to them, despite overwhelming support from the Democrats in the House and the Senate for closing the loophole that you yourself campaigned on so aggressively.”

But conservative groups and the private-equity industry want Congress to continue to treat carried interest as capital gains.

A coalition of conservative groups, including Grover Norquist’s Americans for Tax Reform, sent a letter to Speaker Paul RyanPaul Davis RyanSenate Dems build huge cash edge in battlegrounds Kelly lobbied Republicans to rebuke Trump after Putin press conference: report Lobbying world MORE (R-Wis.) in March arguing that a tax increase on carried interest could hurt pension funds and charities.