Treasury Secretary Steven Mnuchin was a key player within the Trump administration who reportedly supported keeping a loophole in the tax reform bill that benefits hedge fund managers, even though President Donald Trump himself had pledged to close it.
The loophole, known as carried interest, is a preferential tax treatment that charges private equity managers and others paid with the returns of investment funds a capital gains rate instead of the individual income tax rate. Carried interest is 23.8 percent on sales of assets held for at least a year — the top marginal tax rate will be 37 percent when the tax reform package takes effect Jan 1.
Within the White House, Trump’s economic team was split over whether to push for an end to the carried interest break. On one side, economic adviser Gary Cohn wanted abolish it, while Mnuchin successfully argued for keeping it, reports Bloomberg, citing people familiar with the matter.
During the 2016 campaign, Trump blasted the carried interest rule, saying it allowed hedge funders to “get away with murder.” He accused Hillary Clinton of failing to close the loophole during her time in the Senate, a charge that was part of his effort to paint Clinton as a tool of Wall Street.
Mnuchin, a former Goldman Sachs banker, had also discussed amending the carried interest rule, but suggested less significant changes than Trump so as not to “discourage investment.”
Mnuchin’s support for the loophole was described as helpful to lobbyists in their entreaties to lawmakers involved in writing the tax reform bill. Even without his backing, though, key Republicans on the tax-writing committee — House Ways and Means Chairman Kevin Brady of Texas, Peter Roskam of Illinois, Carlos Curbelo of Florida and George Holding of North Carolina — were all in favor of keeping the rule, reports Bloomberg.
The final version of the tax bill, which Trump signed Friday, keeps the carried interest break in place, but limits it to gains on assets held for at least three years instead of one.
Some otherwise pro-Trump commentators were disappointed to see carried interest survive multiple revisions of the tax bill. On Friday, Fox Business host Stuart Varney, who supports most of the bill’s provisions, called the preservation of the carried interest rule an “extremely disappointing” example of “politics at its worst.”
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