White House Aide Revives Pledge to Curb Private-Equity Tax Break, Though Impact Unclear
April 30 2017 - 1:15PM
Dow Jones News
By Eric Morath and Richard Rubin
WASHINGTON -- The Trump administration plans to try to limit
certain tax benefits currently enjoyed by private-equity firms and
other financiers, a top White House aide said Sunday.
But even with such a shift, the administration's full tax plan
may still lower taxes on those firms and their managers.
The administration's tax overhaul proposal released last week
didn't address the question of whether the White House wanted to
end the current tax treatment of "carried interest," or profit
share, for investors who claim those earnings as capital gains,
rather than ordinary income, and pay a lower tax as a result.
During last year's campaign, President Donald Trump said he
would curb that practice. And while his tax-overhaul outline didn't
follow through on that pledge, his White House chief of staff,
Reince Priebus, said Sunday he would keep that promise.
"That balloon is going to get popped pretty quickly," Mr.
Priebus said on ABC's This Week. "The president wants to get rid of
carried interest, so that balloon is not going to stay inflated
very long, I can assure you of that."
Mr. Priebus's comments echo those made by Treasury Secretary
Steven Mnuchin, who said in late March that "on carried interest,
we want to tax hedge funds," though he didn't elaborate at the
time.
Under current law, fund managers' share of profits is taxed as
capital gains subject to a top rate of 23.8% for long-term gains,
rather than as ordinary income subject to a top rate of 39.6%.
Democrats have been trying for a decade to change that rule,
arguing that fund managers are getting investment tax rates for
what is really labor income.
Even if Mr. Trump proposes such a change, private-equity firms,
hedge funds, real-estate investors and venture capitalists could
see significant tax cuts under the full terms of the tax outline
the White House released last week.
In that proposal, the White House called for a new 15% rate for
income created in sole proprietorships, partnerships and other
"pass-through" companies. These include many small businesses, law
firms, hedge funds and the president's own real estate and branding
businesses.
Cutting the pass-through tax rate to 15% while keeping top tax
rates above 30% could put firms in the unusual position of having
firm owners, such as law-firm partners and hedge-fund owners,
paying much lower tax rates than their own employees.
And it would encourage fund managers to take a bigger share of
their income as lower-taxes fees subject to Mr. Trump's proposed
15% rate rather than the 35% top rate that would apply to ordinary
income and, theoretically, carried interest.
The administration could propose rules to address those issues
but is still in the early stages and produced only a one-page
summary last week.
In the interview, Mr. Priebus also disputed the notion that the
president's tax plan disproportionately benefits the wealthy.
"While the top rate has been lowered to 35%, there's also a lot
of deductions that have been taken off the table," he said. "So a
person like Donald Trump...and others are not going to see much of
a reduction -- a lot of the deductions that they enjoy are taken
away."
The only major deduction for individuals that the White House
has proposed eliminating is the break for state and local
taxes.
Mr. Trump and other high-income households would benefit from
the lower rates on pass-throughs, corporations, capital gains,
dividends and estates.
Write to Eric Morath at eric.morath@wsj.com and Richard Rubin at
richard.rubin@wsj.com
(END) Dow Jones Newswires
April 30, 2017 13:00 ET (17:00 GMT)
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