A Tax Loophole for the Rich That Just Won’t Die For decades, the carried interest provision has enabled wealthy private equity managers, hedge fund managers and real estate investors to pay the lower capital gains rate (20 percent, not counting the Obama health care surcharge of 3.8 percent) on their income rather than the rate on ordinary income (a maximum of 39.6 percent). “The amendment will encourage and reward long-term investment while also applying equally to all sources of growth capital — no matter if that investment is provided by hedge funds, private equity, venture capital or otherwise,” Shane McDonald, a spokesman for Mr. Brady, told me. Mr. Fleischer argues that the proposed tax bill — by slashing the corporate and pass-through tax rates and preserving the lower rate for capital gains — already heavily favors risk taking and investment. “There’s no shortage of people who want to go into private equity and earn millions or billions of dollars.” The rationale, he said, “is absurd.” That the carried interest provision survived, despite Mr. Trump’s campaign statements and populist hostility to it, appears to be a testament to the enduring influence that Wall Street and wealthy investors exert over both the White House and Congress. “The real issue is that carried interest is compensation for services performed for the investment fund,” Mr. Fleischer said. The plan “is a tax increase on the working upper middle class and the rich in states like California, New York and New Jersey in order to benefit the people who own pass-through entities and are shareholders,” Mr. Fleischer said.
