Baldwin has long fought to close the carried interest loophole that benefits wealthy money managers on Wall Street
WASHINGTON, D.C. – U.S. Senators Tammy Baldwin (D-WI) and Elizabeth Warren (D-MA) led a group of their colleagues in challenging President Donald Trump to end a tax loophole, the carried interest loophole, that benefits wealthy money managers on Wall Street. Senator Baldwin leads legislation to close this loophole and, in February, she pushed for a vote on her amendment to end the tax break during the Senate’s budget resolution debate. While he failed to enact it in his first term, President Trump has been supportive of closing this loophole and has advocated for closing it as recently as this year.
“During your first campaign, you claimed that the carried interest loophole was ‘ridiculous’ and ‘unfair to American workers’ and that the individuals reaping the benefits from the loophole were ‘getting away with murder.’ We agree,” wrote Baldwin and the lawmakers in a letter to President Trump. “We write to ask that you follow through on your promise to eliminate the carried interest loophole and demand that Congressional Republicans eliminate it in any tax bill they send to your desk.”
When private equity managers oversee an investment fund, they receive a 20% share of the profits earned from the funds’ investments, called “carried interest.” This interest is not subject to the ordinary income tax rate of 37%, and is instead taxed at the 20% capital gains rate as long as the investments are held for at least three years. As a result, private equity fund managers who routinely make hundreds of millions of dollars are subject to a tax rate lower than that of an average blue-collar worker.
“Despite the extraordinary profits that private equity funds are raking in each year, the carried interest loophole allows private equity managers to avoid paying their fair share of taxes, often paying tax rates that are lower than middle-class workers,” continued Baldwin and the lawmakers.
The massive loophole costs the federal government tens of billions of dollars in tax revenue, and the private equity industry regularly donates significant sums to politicians sympathetic to their cause in order to make sure the loophole remains open for their profit. The industry has donated almost $600 million to political campaigns over the last decade to maintain a loophole worth upwards of $63 billion over the next 10 years.
In addition to Senators Baldwin and Warren, this letter is co-signed by Senators Chris Van Hollen (D-MD), Sheldon Whitehouse (D-RI), Jeff Merkley (D-OR), Ron Wyden (D-OR), Amy Klobuchar (D-MN), Jack Reed (D-RI), Peter Welch (D-VT), and Bernie Sanders (I-VT).
The full letter is available here and below.
Dear Mr. President:
We write to ask that you follow through on your promise to eliminate the carried interest loophole and demand that Congressional Republicans eliminate it in any tax bill they send to your desk.
During your first campaign, you claimed that the carried interest loophole was “ridiculous” and “unfair to American workers” and that the individuals reaping the benefits from the loophole were “getting away with murder.” We agree. Despite the extraordinary profits that private equity funds are raking in each year, the carried interest loophole allows private equity managers to avoid paying their fair share of taxes, often paying tax rates that are lower than middle-class workers.
When private equity managers oversee an investment fund, they receive a 20% share of the profits earned from the funds’ investments. This portion of future profits is known as “carried interest.” Although carried interest is essentially salary for private equity managers, it is not subject to the ordinary income tax rate of 37% and instead is taxed at the 20% capital gains rate as long as the investments are held for at least three years. The result? Private equity fund managers who routinely make hundreds of millions of dollars are subject to a tax rate lower than that of an average blue-collar worker making $85,000 a year.
Though this massive loophole costs the federal government billions of dollars in revenue, efforts to constrain it have consistently fallen short. In a desperate attempt to retain Wall Street’s favorite loophole, the private equity industry doles out eye-popping amounts of campaign cash to curry favor with politicians sympathetic to their cause. And it works. In fact, economists have credited the hedge-fund-led lobbying blitz to the survival of the loophole. Overall, the industry doled out almost $600 million to political campaigns over the last decade, a cheap price tag for a loophole worth upwards of $63 billion over the next ten years.
It is clear that the private equity industry has fought hard to retain these extraordinary tax giveaways. What is less clear is whether you will allow your party to deviate from your commitments, bow to industry demands, and fail to close the loophole for a second time. You were an avid supporter of closing the carried interest loophole throughout your first campaign and during the first few months of your first administration. Your chief economic adviser even publicly confirmed in September 2017 that you “remain[ed] committed to ending the carried interest deduction.” Yet, only a few months later, your signature legislative package, the Tax Cuts and Jobs Act, did virtually nothing to change the loophole.
Now, you have another opportunity to get the job done. You have once again confirmed your desire to end the loophole, and we understand that last week you asked Speaker Johnson to close the carried interest loophole. Notably, the House Ways and Means Committee defied your wishes and chose to advance legislation that does not eliminate the carried interest loophole.
So, Mr. President, will you get it done?
An online version of this release is available here.
