President Obama on Wednesday called for ending a tax provision that benefits private equity and hedge fund managers to help pay for new spending Democrats are pushing as part of upcoming budget talks.
The so-called carried interest tax carve out has long been targeted by Democrats, but scrapping the provision is gaining increased attention with GOP presidential candidates Donald Trump and Jeb Bush calling for its end.
It’s a point not lost on Obama.
“You’ve got two leading candidates on the Republican side who have said we should eliminate the carried interest loophole,” Obama said in remarks to the Business Roundtable, where he made his case that the spending increases would help the economy and workers.
Congress and the White House are preparing for what promises to be a bruising budget battle this fall with the potential for a government shutdown at the end of this month when the fiscal year ends.
Democrats are calling to scrap “sequestration” spending caps put in place in 2011 in order to boost spending for both military and domestic programs – a move opposed by Republicans.
To help push back against the argument that spending increases would be a deficit buster, Obama said ending the carried interest carve out is one way to help pay for the funding boosts.
“This is an example of how we can maintain fiscal responsibility while at the same time making the investments we need to grow,” he said
Carried interest has been a favorite political punching bag for Democrats who say it is a giveaway to wealthy private equity and hedge fund managers. It is a provision in the tax code that allows fund managers to avoid billions of dollars in taxes by treating their income as capital gains rather than as salaries. Income on long-term gains from investments is taxed at 20 percent while ordinary income is taxed at a top rate of 39.6 percent.
Ending this tax treatment would raise as much as $18 billion over 10 years, according to a recent estimate from the Treasury Department. That would not be enough to offset all $50 billion in additional domestic spending the White House requested in its budget, but it would be a start.
Congressional Republicans, including House Ways and Means Chairman Paul Ryan (R-Wisc.), have largely avoided the issue. But it is gaining traction now that Trump and Bush have endorsed it on the campaign trail.
“I would take carried interest out, and I would let people making hundreds of millions of dollars-a-year pay some tax, because right now they are paying very little tax and I think it’s outrageous,” Trump told Bloomberg TV last month. “I want to lower taxes for the middle class.”
Ryan told an audience at an accounting conference in May that carried interest was an issue he planned to address in 2017 when he hopes to begin work on rewriting the individual side of the tax code.