Changes

General partners are compensated for managing their private investment funds through management fees and carried interest. Management fees are consistently around 2 percent of a fund's assets under management and are paid regardless of the fund's performance. Carried interest, alternatively, serves to join the incentives of the general partners with the interests of the limited partners by providing performance-based compensation for the general partners. When a private equity or hedge fund surpasses its hurdle rate of return, usually about 8 percent, the general partners will typically receive around 20 percent of the profits as compensation<ref name="fleischer" />. The general partner in a venture capital fund, on the other hand, will consistently receive 20 percent of the profits as long as the limited partners have received a return at least equal to their contributed capital<ref name ="gilson" />. This 20 percent, in combination with any other profit the general partner may receive from their own stake in the fund, is treated as a capital gain for tax purposes. The 2 percent management fee is treated as ordinary income for tax purposes<ref name="fleischer" />[http://victorfleischer.com/wp-content/uploads/2009/12/Two-and-Twenty.pdf]. The maximum rate for a capital gains tax is 20 percent[http://www.bankrate.com/finance/taxes<ref name = "bell" /capital-gains-tax-rates-1.aspx]>, compared to the maximum rate for an ordinary income tax of 39.6 percent[http://taxfoundation.org<ref name = "taxbracket" /article/2016-tax-brackets]>.

Carried interest is an ongoing issue for politicians, the public, and investors alike. Due to the ambiguity of the issue and substantial lobbying on the part of financial institutions, the opponents of carried interest have had little success with policymakers. Opensecrets.org reports that more than $1.1 billion<ref name = "opensecrets" />[http://www.opensecrets.org/industries/totals.php?cycle=All&ind=F] was donated to democratic and republican congressional campaigns by financial institutions in the years 2012 and 2014. Although, presidential nominees Donald Trump and Hillary Clinton have both come out in opposition of carried interest as they advocate taxing capital gains as ordinary income[http://thehill.com/blogs/congress-blog/economy-budget/257083-what-the-carried-interest-tax-loophole-reveals-about-our].

<ref name = "opensecrets>[http://www.opensecrets.org/industries/totals.php?cycle=All&ind=F] ''Center for Responsive Politics''</ref>