Carried Interest Loophole Loved by Hedge Funds on Chopping Block Under Trump

This story first appeared in the May 1, 2017 edition of the and quotes alliantgroup National Managing Director Dean Zerbe.

The carried interest loophole that was conspicuously absent from the White House tax plan White House tax principles unveiled last week is still on the chopping block, according to Chief of Staff Reince Priebus.

The former Republican National Committee chairman said in an appearance on ABC’s “This Week” on Sunday that the loophole used by hedge fund and private equity managers to lower their tax rates is still on the table.

“That balloon is going to get popped pretty quick,” he said. “The president wants to get rid of carried interest.”

The carried interest rule allows fund managers to pay a capital gains tax rate on their incomes instead of the higher income tax rate. So, instead of paying a top rate of 43.4% (the top rate of 39.6% plus a 3.8% investment tax), managers instead pay a rate of 23.8% (a 20% tax on net capital gains plus 3.8%).

Trump on the campaign trail slammed hedge fund managers as “getting away with murder” for not paying their fair share in taxes and said he would scrap the carried interest loophole. The finance industry breathed a tentative sigh of relief when the rule was left out of Trump’s one-page tax plan, but Priebus’ comments indicate it’s still on the radar.

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sb-d-zerbe[1]Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington, D.C. office. Prior to joining alliantgroup, Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman of the Finance Committee, Senator Charles Grassley, on tax legislation. During his tenure on the Finance Committee, Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law, including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform) and the Pension Protection Act. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.