Trump’s Proposal to Increase Tax on Carried Interest

In a recent move, President Donald Trump has proposed to eliminate the carried interest tax loophole, a tax break that has long benefited Wall Street investment managers. This proposal aligns Trump with many Democratic lawmakers who have also sought to remove long term capital gains from carried interest.

Carried interest refers to the share of profits that investment managers receive from their funds, typically around 20% of the profits. Under current tax laws, fund managers can receive long term capital gains if the investment is held over 3 years, which has a top tax rate of 20% for long-term gains. This is significantly lower than the highest rate of 37% for regular income.

Eliminating the carried interest tax break could potentially increase tax revenue by about $100 billion over the next decade. This move is part of a broader tax reform plan that includes other measures such as expanding the state and local tax deduction and ending special tax breaks for billionaire sports team owners.

The proposal has received mixed reactions. While some see it as a step towards a fairer tax system, others, particularly from Wall Street, argue that it could discourage long-term investments that support jobs and local communities. The American Investment Council has urged the administration to preserve the tax break, emphasizing its role in promoting economic growth.

Trump’s proposal is a significant shift in tax policy. Whether it will be implemented and how it will impact the economy remains to be seen. Stay tuned for more updates from Withum with these every changing policies and how they could impact you and your business.

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