From early in the 2016 presidential campaign, Donald Trump swore he’d do away with the so-called carried-interest loophole, the notorious tax break that allows highly compensated private-equity managers, real estate investors and venture capitalists to be taxed at a much lower rate than other professionals.
“They’re paying nothing, and it’s ridiculous,” Trump said in August 2016. “These are guys that shift paper around and they get lucky.” They were, he concluded, “getting away with murder.”
As recently as late September, his chief economic adviser, ex-Goldman Sachs executive Gary Cohn, insisted that the administration was set on closing what’s also referred to as the “hedge-fund loophole,” though hedge funds profit from it less than private-equity firms. “The president remains committed to ending the carried interest deduction,” Cohn told CNBC. “As we continue to evolve on the framework, the president has made it clear to the tax writers and Congress. Carried interest is one of those loopholes that we talk about when we talk about getting rid of loopholes that affect wealthy Americans.”
Yet the sweeping tax legislation released by House Republicans leaves the treatment of carried interest untouched.
The preservation of the loophole is only the latest and starkest example of how a policy that is increasingly attacked as unfair and unjustified by people on both sides of the aisle has managed to survive through the influence of its well-placed beneficiaries.
When it comes to the new tax bill, that influence surely included Stephen Schwarzman, chief executive of the Blackstone Group, one of the largest private-equity firms in the country. In 2010, when Congress, then controlled by Democrats, came close to closing the loophole, Schwarzman compared the proposal to the Nazi invasion of Poland. (He later apologized.) Schwarzman alone is estimated to have saved close to $100 million per year as a result of the treatment of carried interest, which makes…