Democrats Hike Taxes On Everyone But Themselves

When Richard Neal of the Ways and Means Committee Chairman proposed this week a major set of new tax hikes to pay for the Democrats’ spending plans, there was one tax cut which is popular among top Dem donors kept in place—the taxes on carried interest at the lower rate.

After months of backroom lobbying by private equity groups, the tax break is still in place. The Democrat bill now simply lengthens the time an investment needs to be held to get the capital gains treatment from three up to five years, a switch that those close to the matter report was actually created by lobbyists on behalf of private equity.

The current tax break for carried interest is much better for private equity than normal hedge funds since hedge funds do not hold assets for such a time to qualify for the capital gains treatment. Private equity funds usually do.

Some have said that the Democrats who are raging against carried interest are doing so only in hopes of getting populist resentment to win their midterm elections and to get donations from managers who want to dampen their reforms. The removal of meaningful changes to carried interest taxes from the newest proposal supports these charges.

“Yet when Dems have the power, they never remove the provision. And the draft bill just prolongs the holding time to five years up from three. Once they face being at odds to some of their wealthiest backers, Democrats are thinking twice,” the WSJ editorial page stated on Tuesday.

Clifford Asness, who is the founder of the management company AQR Capital Management, trolled AOC’s “tax the rich” dress after the removal of carried interest from the Dem tax hikes.

Hedge and private equity funds are normally organized like partnerships, with the managers getting a part of the fund’s profits if the fund does well. The manager’s cut is called “carried interest.” Under the law right now, the money that goes to the managers and outside investors are both treated the same, meaning they can get lower capital gains rate.

Private equity connected donors overwhelmingly supported Biden over Trump during the 2020 election, just as they supported Hillary Clinton in 2016.

Author: Scott Dowdy