It’s been nearly a month since President Trump last expressed his intent to eliminate the carried interest loophole. While some might argue that it’s not exactly a “loophole,” the private equity sector anticipates significant losses if the president ends this particular tax break, and they’re preparing for a battle.
This situation presents the most substantial threat to the provision since it was almost dismantled three years ago under former President Joe Biden, as noted by Grady McGregor in DealBook.
For those needing a quick refresher: the carried interest rule permits hedge funds, private equity, and venture capital firm executives to pay a reduced tax rate of about 20% on their profits. This low rate has been criticized by figures like Warren Buffett and Massachusetts Senator Elizabeth Warren.
In Washington, the lobbying efforts are described as “significant,” underscoring the rising stakes involved, according to one lawyer who spoke to DealBook.
Over the past month, the private equity lobbying group, the American Investment Council, has reportedly been busy distributing memos on Capitol Hill to highlight private equity’s role as a job creator. Venture capitalists, often found in Trump’s Washington, express frustration over having to repeatedly educate lawmakers on the rule’s benefits. Meanwhile, so-called free market groups have come together to urge Congress to maintain the status quo.
Jessica Millett, a tax partner at Hogan Lovells, sums it up: “They’ll fight tooth-and-nail on any sort of change.”
The carried interest lobbying coalition includes affluent real estate, venture capital, and private equity groups, featuring heavyweights like Blackstone and the Carlyle Group. Organizations like the American Investment Council, the National Venture Capital Association, and the Real Estate Roundtable have persistently defended this tax arrangement.
Jonathan Choi, a law professor at the University of Southern California, notes that this issue is a longstanding point of contention for these trade groups.
What’s different this time is discerning the seriousness of Trump’s stance on eliminating it. Trump has staunchly opposed carried interest for years, famously stating a decade ago that hedge fund managers misusing the tax code were “getting away with murder.”
The numbers tell a revealing story: eliminating the carried interest would save the government an estimated $14 billion over a decade, as per the Congressional Budget Office. Trump is on the hunt for much more substantial savings to ensure his upcoming “big, beautiful” tax bill doesn’t balloon the deficit.
Previously, Trump aimed to abolish carried interest in his 2017 tax bill but backed down due to opposition from lobbyists and Republican lawmakers, according to Victor Fleischer, a law professor at the University of California, Irvine.
Now, however, “People think that it’s cheap talk,” Fleischer mentions. Yet, some within Democratic circles feel there might be more seriousness to Trump’s current stance, spurred on by signals coming from the White House.
Trump’s opposition to carried interest creates a rare rift between him and Republican lawmakers. Traditionally, Democrats have spearheaded initiatives to eliminate it. When Trump recently renewed his call for its abolition, it was congressional Democrats, rather than Republicans, ready with bills to achieve that goal.
However, Trump’s actions may be starting to weaken GOP unity. In recent weeks, Republican Senators John Cornyn of Texas and Thom Tillis of North Carolina, both members of the Senate Finance Committee, expressed openness to considering changes to the rule.
The latest challenge to carried interest arose in 2022 when former President Joe Biden proposed its elimination in the Inflation Reduction Act. Lobbyists fiercely lobbied Senator Kyrsten Sinema of Arizona, encouraging her to vote against it. Sinema eventually supported the bill, but only after ensuring carried interest remained intact.
While lobbyists worry about potential GOP defections, they find it easier this time compared to the previous efforts, where flipping a critical swing senator was necessary. “They don’t need a Sinema to save them,” says Fleischer.
In an attempt to appease Trump without entirely eliminating the rule, Congress might consider reforming it. Millett of Hogan Lovells highlights industry concerns that extending the qualifying holding period from three to five years before benefiting from the carried interest tax break could drastically affect business operations. Private equity firms often hold investments for five to eight years, which presents challenges under potential new reforms.
Fleischer, whose influential academic paper brought the carried interest debate to light two decades ago, believes that whether reformed or not, the loophole is unlikely to disappear. “It will outlive us all,” he muses.
In other developments, the labor market continues to grow steadily. The latest nonfarm payrolls report reveals employers added 151,000 jobs last month, aligning with Wall Street expectations and extending the job-growth streak to 50 months. However, the Musk-led job cuts by the Department of Government Efficiency may not impact labor market data for another month or two.
In the stock market, uncertainty surrounding tariffs triggered a significant sell-off. Despite a late-afternoon rally, the S&P 500 ended the week noticeably lower. Investors are concerned about potential economic slowdowns and how President Trump’s fluctuating tariff policies might disrupt global trade. Recently, Trump deferred certain tariffs on Mexico and Canada under the USMCA, but tariffs on aluminum and steel are set to take effect shortly.
Elon Musk had a tense encounter with Cabinet officials at a White House meeting, particularly targeting Marco Rubio. According to Maggie Haberman and Jonathan Swan from The Times, Musk, frustrated by the lack of firings, criticized the secretary of state. However, Trump defended Rubio and clarified that department management falls under the Cabinet chiefs, while Musk is an adviser—a move indicating the president’s willingness to define boundaries for the billionaire’s influence in Washington.
Meanwhile, several tech start-ups are considering public offerings. CoreWeave, a seller of cloud-based Nvidia processing power, has filed to go public, potentially becoming the year’s inaugural significant technology IPO. Other companies, including Discord and StubHub, are also in discussions about going public, as reported by DealBook’s Lauren Hirsch and The Times’s Mike Isaac.
In the world of media, the future seems to be leaning toward niche markets. In 2013, former Wall Street Journal reporter Jessica Lessin launched The Information, and over the years, her newsroom expanded, generating $20 million in sales. Her additional ventures, including investments in Semafor and Racquet magazine, demonstrate her belief in specialized publications and passionate founders, underscoring the opportunity within niche markets.
Lessin’s investments emphasize direct subscription revenue models and dynamic leadership, qualities she finds lacking in major media entities focused more on broad markets. She envisions direct user-driven models as pivotal in shaping the next generation of news content.
As the media landscape evolves, Lessin continues exploring potential mergers with The Information to maintain its authoritative position in technology reporting while remaining open to broader opportunities. Her passion for niche content fuels her confidence in the enduring viability of specialized outlets amidst the larger media landscape.
