published Sep 28, 2017, 3:27:07 PM, by Sarah McGregor
(Bloomberg) —
President Donald Trump is still intent on eliminating the carried interest tax break even though it wasn’t specified in his tax framework, White House Economic Adviser Gary Cohn said.

“The president remains committed to ending the carried interest deduction,” Cohn said in an interview on CNBC on Thursday. “As we continue to evolve on the framework, the president has made it clear to the tax writers and Congress. Carried interest is one of those loopholes that we talk about when we talk about getting rid of loopholes that affect wealthy Americans.”

Carried interest is the portion of a fund’s profit — usually a 20 percent share — that’s paid to private-equity managers, venture capitalists, hedge fund managers and certain real estate investors. Currently, tax authorities treat that income as capital gains, making it eligible for a rate as low as 20 percent. The top tax rate for ordinary income is 39.6 percent.

Trump highlighted the carried-interest tax break during his populist presidential campaign, labeling some hedge fund managers as “paper pushers” who are “getting away with murder.”

“Our plan is based on lowering rates and expanding the base,” Cohn said during a White House press briefing Thursday. “You expand the base by getting rid of the loopholes — the loopholes that wealthy taxpayers have used to pay tax on less of their income.”

Read more: Carried interest — a QuickTake explainer

The tax framework sets up some suspense over where Congress will set the top individual income-tax rate higher than the 35 percent mentioned in the document. But another provision, which would slash the rate paid by owners of partnerships and limited-liability companies, is seen as a potential bonanza for people at the top of the income scale.

“No decision yet,” House Ways and Means Chairman Kevin Brady told reporters Thursday, in response to a question about the status of carried interest. “Our committee is considering that provision but haven’t reached a decision.”

Treasury Secretary Steven Mnuchin said last month that Trump may keep the carried interest tax break for firms that create jobs, while eliminating it for hedge fund managers.

“Politics aside, carried interest meets the criteria for long-term capital gains,” said James Maloney, vice president of public affairs at the American Investment Council, the private equity industry’s lobbying group in Washington. “It is not a loophole and both Treasury and nearly every Republican member of the House and Senate understands this appropriate classification.”

Many hedge funds don’t benefit from the tax break. That’s because the lower capital gains rate applies only when assets are held for at least a year, and many hedge funds hold assets for far shorter time frames — especially those that use computer-driven strategies to buy and sell securities thousands of times a day.

‘Bright Line Test’

On the corporate side, Cohn said Thursday that Trump isn’t willing to negotiate a tax rate higher than 20 percent for businesses.

“We would have liked to start lower” than 15 percent “and given ourselves some negotiating room,” Cohn said. A 20 percent corporate tax rate is a “bright line test for us” and “we are not going over” that level. “This does become a reality of making the budget balanced and making the economic realities of the United States work,” he added.

When asked during the press briefing about whether offshore profits that companies repatriate, or bring to the U.S., would wind up in the hands of investors instead of workers, Cohn said: “If that happens, that’s fine — we know that that money will get invested right back into the economy.”

–With assistance from David Carey and Ben Brody.To contact the reporter on this story: Sarah McGregor in Washington at smcgregor5@bloomberg.net To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net Alexis Leondis, Joshua Gallu
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