Trump Says He Still Wants to End Carried Interest Tax Benefit

(Bloomberg) -- President Donald Trump, still rankled by the preferential tax treatment of investment profits at hedge funds and private equity firms, says he wants another crack at ending so-called carried interest.

“So is carried interest something you’d still like to do?” Fox interviewer Steve Hilton asked Trump in an interview broadcast Sunday night. “I would like to do it, I will do it,” the president said in response.

The 2017 GOP tax overhaul imposed new curbs on carried interest but fell far short of eliminating its benefits altogether.

Carried interest, an investment manager’s slice of profits from a fund that is typically 20%, is taxed at the long-term capital gains rate of 20%. Critics argue that it should be taxed like ordinary income, whose rates now top out at 37%, and several Democrats have proposed raising the rate in past years.

But in Congress, the appetite to revisit the 2017 Tax Cuts and Jobs Act, the GOP’s most significant legislative achievement, is very small. Spokesmen for Senate Finance Committee Chairman Chuck Grassley and House Ways and Means Committee Chairman Richard Neal didn’t immediately return messages seeking comment on the president’s remarks.

Trump turned carried interest into a rallying cry during his presidential campaign, declaring that “hedge fund guys are getting away with murder.”

“Yeah, I hated it,” he told Fox, responding to a question about his view of the benefit during his campaign.

Trump’s tax law curbed one part of the benefit. It requires fund managers to hold their underlying investments for at least three years, not one year as under the old law, if they want the preferential rate on profit shares. But that curb doesn’t apply to funds invested in regulated futures contracts or contracts to trade foreign securities.

During negotiations over the tax bill, Trump said Sunday, he “traded” the preferential tax treatment for lowering the corporate rate to 21% from 35%.

“I traded that for two points,” he said, adding that “I could have had carried interest out, but you would have paid 23 or 24 instead of 21. I wanted the 21%. I used that as a negotiating chip, and frankly it was a very good deal.”

If true, such horse-trading wasn’t public during the bill’s negotiations.

Still, Trump said that “every time I want to do it they offer me things that are much more valuable than carried interest. It’s not -- it’s not that much money.”

The Joint Committee on Taxation estimated in 2015 that the tax break cost $15.6 billion over a decade.

But another JCT study in 2007 cited a 2006 independent study showing that managers of more than 1,000 private equity funds alone reaped a net carry of $78 billion over 1991 to 2004.

--With assistance from Joe Light.

To contact the reporter on this story: Lynnley Browning in New York at lbrowning4@bloomberg.net

To contact the editors responsible for this story: Wendy Benjaminson at wbenjaminson@bloomberg.net, Gregory Mott

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