Trump looks to end carried interest tax loophole, hitting Wall Street’s wealthiest

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Trump looks to end a controversial tax loophole that has enriched Wall Street’s wealthiest for years
by Christian Hetzner
February 7, 2025

A little-known provision in the tax code allows private equity managers and hedge fund speculators to treat their earnings not as income but as capital gains, allowing them to cut their tax burden by roughly half. But previous attempts to crack down on the practice failed as Wall Street whales like Blackstone’s Steven Schwarzman compared an attack to the Nazi blitzkrieg.
President Donald Trump is mounting another effort to eliminate a controversial loophole that has long allowed Wall Street’s überwealthy to evade millions of dollars in taxes every year.

At stake is a little-known provision known as “carried interest” that benefits private equity managers, hedge fund speculators, and other investment professionals.

It allows them to treat personal earnings not as income in the legal sense but as capital gains—subject to a far lower bracket that can halve their tax burden.

Ever since Wall Street’s bankers were bailed out of their high-risk bets that triggered the global financial crisis, politicians like Barack Obama have taken aim at this loophole.

And even Trump, during his first run for the presidency, argued billionaire speculators were “getting away with murder” thanks to this peculiarity.

This latest attempt to crack down on the practice comes amid a broader tax relief plan the administration is trying to push through Congress at a sensitive time when the country’s finances are already strained.

The package includes an extension to Trump’s signature 2017 tax cut, which is due to sunset at the end of this year if new legislation is not passed.

“This will be the largest tax cut in history for middle-class working Americans. The president is committed to working with Congress to get this done,” White House press secretary Karoline Leavitt told reporters on Thursday, defending the package.
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Lastly, success in closing the carried-interest loophole is anything but guaranteed.

If there has been one economic policy on Capitol Hill that enjoys bipartisan consensus, it was that this tax break for ultrawealthy speculators, who are well-known for generously donating to political campaigns, can be attacked but must never actually be touched.

As a result, each and every time an attempt has been made to deprive Wall Street of its coveted tax loophole—including Trump’s own 2017 tax cut—any references that might follow through mysteriously vanish from the final bill.

In fact, Wall Street famously felt so strongly about retaining this boon that Steven Schwarzman, the CEO of Blackstone, once compared the very idea of eliminating it to nothing less than the Nazi blitzkrieg.

In comments the private equity speculator later was forced to walk back, he scathed: “It’s like when Hitler invaded Poland in 1939.”

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