Private investment industry groups in the U.S. disapprove of President Donald Trump's proposal to eliminate a tax loophole that allows private equity and hedge fund investors to benefit from a lower capital gains tax rate on a significant portion of their earnings.
American Investment Council President Drew Maloney stated, "We urge the Trump administration and Congress to maintain this effective tax policy and encourage additional long-term investments that bolster employment, workers, small enterprises, and local communities."
According to White House press secretary Karoline Leavitt, Trump has outlined his plan, which includes closing the carried interest tax loophole as a measure to counterbalance proposed tax reductions in other areas, such as overtime and tips.
The Congressional Budget Office estimated in 2021 that closing this loophole could generate an additional $14 billion in tax revenue over a decade. This proposal, aimed at adjusting the compensation structure for private fund managers, has been under discussion for over ten years.
Private fund managers receive a portion of their compensation based on the fund's profits, currently taxed at the lower long-term capital gains rate instead of the regular income tax rate.
The National Venture Capital Association argued that "Carried interest incentivizes strategic, high-risk investments in cutting-edge high-growth startups," and warned that altering the system could hinder progress and disproportionately affect small investors.
Maloney highlighted that since the 2017 tax overhaul, the private equity sector has injected over $5.6 trillion into the U.S. economy, supporting 36,000 small businesses.