Donald Trump Has A Point About ‘Carried Interest’

Matt K. Lewis Senior Contributor
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Of all the problems I’ve had with Donald Trump (and there have been many), his recent comments about going after “carried interest” probably bother me the least. In fact, I think he has a point. Why should a teacher or police officer pay a higher tax rate than someone whose primary income is derived from betting on the stock market?

I’m not saying Trump is a free market conservative; he’s not. As the Club for Growth has noted, he’s otherwise legitimately horrible on taxes, trade, health care, and eminent domain.

I am saying he deserves credit for raising this issue — which at least warrants a serious debate.

Make no mistake, we need tax reform. Personally, I’d favor a flatter, simpler tax code. But reforming and simplifying our gargantuan tax code will necessarily require closing loopholes — such as the one exploited by hedge funds.

Tax reform would likely involve other “hikes” such as setting a ceiling for mortgage deductions, etc. This is not a new concept. President Reagan dramatically cut taxes during the eight years of his presidency — but he also raised taxes eleven times to get there.

Interestingly, Trump’s comments about carried interest are being portrayed as an example of him blowing up GOP orthodoxy. But while private equity firms may care a great deal about this, protecting this loophole is not at the top of the list of things most free market conservatives care about (at least, not in my experience).

Nor is Trump’s idea incredibly original. Last year, Rep. Dave Camp, then the head of the House Ways and Means Committee, released a plan that would wrap “a change to carried interest inside a reconstruction of the tax code that would lower tax rates and broaden the tax base.” In other words, the loophole would be closed as part of a more comprehensive plan that would give us a flatter and fairer tax code that lowered rates.

We should obviously be prudent when it comes to tinkering with the tax code; there may be unintended consequences. But it’s certainly an idea that’s worthy of our debate and discussion. This is one time that Trump has, I think, elevated the political debate.

I’ve been a critic of Trump’s populist campaign, but he has done something that Rep. Camp couldn’t do — and that is to get me to write about carried interest. Whenever posts about our arcane tax code become “clickbait,” we all win.

Matt K. Lewis