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Carried Interest: Close the Stupidest Tax Loophole Of All Time (and Trump Agrees, Sort Of)

by Patriotic Millionaires | Updated on 5.17.18

From the experts in Hedge Clippers:

What is the carried interest tax loophole? Simply put, the carried interest tax loophole is the mischaracterization of income fund managers make as capital gains. This mischaracterization allows fund managers to pay taxes at half the rate as every other working American.

Let your elected officials know they need to close the carried interest tax loophole once and for all by clicking above!

The term carried interest goes back to the medieval merchants in Genoa, Pisa, Florence, and Venice. These traders carried cargo on their ships belonging to other people and earned 20% of the ultimate profits on the “carried” product. At the time, this made sense as the shipmen would risk everything to see the journey through. Today, fund managers compensate themselves with 20% of the profits from their funds and this is called “carry” or “carried interest” and claim the capital gains tax rate on that 20%, even though they have nothing at risk when their own capital is not invested. 

Who benefits from the carried interest tax loophole? There are between 3,000-5,000 fund managers in the US who benefit from this loophole. Conservative estimates from the Congressional Budget Office estimate that closing the loophole would result in an additional $1.8 billion in tax receipts per year. Other estimates, including those from tax expert and law professor at University of San Diego Vic Fleischer estimate up to 10x that 18 billion - could be captured every year. 

What did the GOP tax bill do to the carried interest tax loophole? Despite Trump campaigning on closing the carried interest loophole, and Treasury Secretary Mnuchin saying that the bill would close the loophole for hedge fund managers, the GOP tax bill did almost nothing to address the loophole. The only change it made was a provision requiring assets to be held for a minimum of three years, rather than one year, to qualify for the carried interest rate. Because the vast majority of fund managers who take advantage of the carried interest loophole hold their assets for more than three years, this change is effectively worthless. The carried interest loophole is as bad as ever.

What should we do with the carried interest tax loophole? There is no defensible reason why this loophole is open. The preferential capital gains rate is meant for investors risking their own money, not for the manager who gets paid to move someone else's money around.

But fund managers have spent hundreds of millions of dollars in federal lobbying and campaign contributions to keep their loophole open—and it looks like one of the best investments they've ever made. A few thousand people are splitting up between billions of dollars every year simply because the industry has employed some skilled lobbyists. The main fight to keep this egregious loophole open comes from the American Investment Council (AIC), which is led by Mike Sommers (former Chief of Staff to John Boehner) and former Chair of the Republican National Committee Ken Mehlman. To date, they have both denied an open-to-the-public debate with the Patriotic Millionaires about the merits of the keeping the loophole open.

Congress should absolutely close the loophole. Currently, legislation from Senator Tammy Baldwin and Representative Sandy Levin exists that would do just that - S. 1020 and H.R. 2295 respectively. 

Let your elected officials know they need to close the carried interest tax loophole once and for all by clicking above!

Additional reading:

  • Close My Tax Loophole” by venture capitalist Alan Patricof
  • VIDEO: Patriotic Millionaires Slam Mnuchin/Trump for Selling Out the Country on Carried Interest”
Patriotic Millionaires

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  • Enigma
    07/11/2018
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    FIRST AND FOREMOST, I AM A PROUD AND GRATEFUL AMERICAN...MORE AMERICAN THAN ANY OF YOU...I AM NORTH DAKOTA SIOUX. MY HUSBAND AND I FIT INTO THE MILLIONAIRE CATEGORY. WE DO NOT NOT NOT SUPPORT THIS BS OF STOMPING ON THE MIDDLE CLASS. I WILL VOTE YOU OUT...I'M VERY PROLIFIC, UBIQUITOUS AND GREGARIOUS....I'LL DEFINITELY POST EVERYWHERE YOU'RE INACTION. THIS IS AMERICA. DO SOMETHING PLEASE. THANK YOU.

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  • AL-KooL
    08/01/2018
    ···

    Taxes should be uniform across the board for all income levels!!!

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