JACKIE CALMES
NYT
At first, the capitalists’ lobby dismissed the billionaire Donald J. Trump’s call to end the so-called carried-interest tax break for “hedge fund guys” as an eccentric idea from one of their own.
Then Jeb Bush, Mr. Trump’s rival for the Republican nomination, embraced it. Some of Wall Street’s heaviest hitters approved. And predictably, Democrats led by President Obama and the party’s presidential candidates piled on, because the tax-the-rich idea had been theirs to begin with.
But far from defeated, the proponents of the carried-interest tax break are rallying to its defense — and counting on the Republican-controlled Congress to have their back.
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“Trump started it,” Mr. Ellis said in an interview. “And then what really got it going was the unfortunate decision of the Bush campaign to include it” in Mr. Bush’s new tax plan. “Then it wasn’t just a kooky Trump idea.”
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For Mr. Trump, the real estate mogul, and Mr. Bush, who briefly had a career in private equity, their opposition to the tax break for a niche of the wealthiest Americans is perhaps a politically advantageous position in this populist moment, despite its departure from Republican orthodoxy. Many voters are frustrated by years of stagnant wages and growing income inequality, which has been exacerbated by the tax code’s preferences.
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At issue with carried interest is the tax code’s longstanding favorable treatment of the generous compensation given to hedge fund managers, private equity partners and venture capitalists as their share of the gains on money they invest for others — institutions as well as wealthy partnerships. That compensation, typically 20 percent of any investment gains (with an additional fee of 2 percent of the sum under management), is taxed as capital gains rather than ordinary income. That means a tax of 23.8 percent — instead of the up to 39.6 percent for ordinary income — even though these money managers generally have not put their own money in play. The traditional justification for low capital gains taxes is to reward risk-taking investors.
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Congressional Democrats have tried in the past to make that compensation taxable at the higher “ordinary income” rates paid by wage earners; Mr. Obama has also proposed as much in his budgets. The carried-interest break was an issue in the 2012 election, given its benefit to the Republican nominee Mitt Romney, a founder of the private equity firm Bain Capital. Mr. Romney’s campaign, on the defensive, suggested that as president he would end the break as part of a rewrite of the tax code.
Postelection, the issue faded again. Then in late August, Mr. Trump, on the CBS Sunday morning program “Face the Nation,” said, “The hedge fund guys are getting away with murder,” tax-wise. Defying Republican political gravity, after his heresy of proposing a tax increase, Mr. Trump’s popularity among Republicans rose.
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Two weeks later on the same program, Mr. Trump doubled down. He claimed the hedge fund industry “totally controlled” both Mr. Bush and the Democratic presidential candidate Hillary Rodham Clinton (who opposes the carried-interest break), and added that, under him, hedge fund managers are “going to be paying up.”
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Disagreeing with Mr. Trump were Republican presidential candidates Gov. John Kasich of Ohio, who said he opposed “changing the incentives for investment and risk-taking,” and Ben Carson, who suggested Mr. Trump’s proposal smacked of socialism.
The same day as the debate, Mr. Obama approvingly cited the opposition of Mr. Trump and Mr. Bush to the carried-interest loophole in his remarks to an audience of corporate executives at a Business Roundtable meeting. “Keeping this tax loophole, which leads to folks who are doing very well paying lower rates than their secretaries, is not in any demonstrable way improving our economy,” he said, echoing a theme of the billionaire Warren Buffett.
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“This is an issue that should be considered only in the context of comprehensive tax reform, and until then, nothing is ruled in or out,” said Brendan Buck, spokesman for Representative Paul D. Ryan of Wisconsin at the House Ways and Means Committee.
Senator Orrin Hatch of Utah, chairman of the Senate Finance Committee, is also holding out for a broad overhaul of the tax code that would end myriad tax breaks so ordinary income tax rates could be lowered. Doing that, he said, “would be a simpler and more effective way to alleviate concerns that some might have.”
http://www.nytimes.com/2015/09/19/business/carried-interest-tax-break-divides-again-after-trump-revives-the-issue.html?_r=0
