Carried interest is a money manager’s share of the profits made by investing clients’ money — typically, around 20 percent. If those profits were made on investments held for more than a year, they’d qualify for the long-term capital gains tax rate of 20 percent, instead of the earned income tax rate of nearly 40 percent. This would apply to both the clients’ share of the profits, and the money manager’s “carried interest” share. Some, like the Private Equity Growth Capital Council, argue that it’s an important driver of economic growth. The"carried interest" loophole, allows billionaire hedge fund managers (and some others) to pay taxes on interest at capital gains rates. This windfall amounts to at least $10-billion/year. Huffington Post
As explained in this NYT article, carried interest is the percentage of investment gains that hedge fund managers, private equity executives and venture capital partners take as compensation, usually in addition to a management fee. (“Two and twenty” has become Wall Street jargon for these funds’ typical compensation scheme, meaning 2 percent of assets under management and 20 percent of any gains.) Because the “carry” is tied to performance, it is treated like an investment and subjected to the lower capital gains tax rate, rather than as ordinary income, even though most managers don’t put any of their own money at risk.The loophole taps into the public’s insecurities over the fairness of the tax system, and whether it unfairly benefits the wealthiest Americans.
"There is one thing that Bernie Sanders, Hillary Clinton, Jeb Bush and Donald Trump all agree on — their professed dislike of the “carried interest” loophole." -PBS
Bernie Sanders says he would end the Carried Interest loophole.
"Senator Bernie Sanders of Vermont introduced legislation in July to get rid of preferential “carried interest” tax treatment, and has argued that President Obama has the authority to unilaterally abolish it." NYT
Hilary Clinton says she would end the Carried Interest loophole.
Trump has said he would close the carried-interest loophole. “The hedge fund guys didn’t build this country,” Mr. Trump told John Dickerson on CBS’s “Face the Nation.” “These are guys that shift paper around and they get lucky.” He continued: “The hedge fund guys are getting away with murder.”
And at Wednesday night’s debate, Mr. Trump raised the issue again. “The hedge fund guys won’t like me as much as they like me right now — I know ’em all,” he said. “But they’ll pay more.”" NYT
"Donald Trump has called for a limited tax increase on this type of income, but only for short-term, speculative hedge funds. He has carved out investment partnerships that buy businesses and real estate for long term investment, the actual target of Baldwin and others. Even then, the rate hike is minimal, from 23.8 to 25 percent." ATR
Jeb Bush says he would end the Carried Interest loophole.
"Only one major republican candidate--Jeb Bush--has called for a tax rate increase on all carried interest capital gains, from 23.8 percent today to 28 percent under his plan." ATR