Trump Must Keep Vow on Carried-Interest Loophole

It’s free money.

Photographer: Chung Sung-Jun/Getty Images

When he was running for president last year, Donald Trump repeatedly promised to close the carried-interest loophole for most Wall Street billionaires, including the vast majority of private-equity and real-estate fund managers.

As president, he appears to be breaking that vow. As Treasury Secretary Steven Mnuchin explained in an appearance with Senator Mitch McConnell last month, the administration will instead keep the loophole open for funds that “create jobs.” This amounts to a loophole for the loophole, and parrots the widely discredited talking points of lobbyists for the private-equity industry (the people who benefit from the carried-interest loophole) who claim the funds create jobs. In reality, the funds are responsible for layoffs nearly as often as they are for job creation.

But even if private-equity funds were responsible for every single new job in the U.S., the carried-interest loophole would still be inexcusable, because it has nothing to do with the functioning of the firms themselves. Carried interest affects the income of the people who own the fund management companies, not the funds they work for or their investors. There is no economic justification for allowing these managers, who make millions and sometimes even billions of dollars without investing any of their own capital, to pay half the tax rate of everyday Americans who actually work for a living.