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This tax loophole costs $180bn a decade. Why won’t Democrats close it? | Robert Reich

Anyone remember the “carried interest” loophole that lets hedge fund executives and private equity managers – among the wealthiest people in America – pay a tax rate no higher than most Americans? It’s a pure scam. They get the tax break even though they invest other peoples’ money rather than risk their own.

Barack Obama promised to get rid of the loophole. He failed. So, remarkably, did Donald Trump. Guess what happened? Nothing.

“I don’t know what happened,” said Larry Kudlow, the conservative economist who crafted Trump’s campaign tax plan. “I don’t know how that thing survived,” he said, adding, “I’m sure the lobbying was intense.”

Now that Democrats are trying to find ways to finance President Biden’s Build Back Better package, you might think that the carried interest loophole would be high on their list. After all, closing it could raise $180bn over 10 years. That’s $180bn that could go toward supporting vulnerable Americans and investing in America’s future.

Think again. The loophole – which treats the earnings of private equity managers and venture capitalists as capital gains, taxed at a top rate of just 20%, instead of income, whose top tax rate is 37% – remains as big as ever. Bigger.

Influential Democrats, such as House ways and means committee chair Richard Neal, argue that closing the loophole would hobble the private equity industry, and, by extension, the US economy. Neal’s ways and means committee wants only to…

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