Senator Chuck Schumer (D-NY) was elected the new Senate Minority Leader, and can be expected to push for closing of what some call a “loophole,” the issue of carried interest not being taxed additionally as income. Carried interest is the part of the profit from an investment fund earned by the manager of that fund. This payment to the investment manager comes from funds that have already been subject to corporate income taxes. So there really is no “loophole” to be closed. Subjecting this income to additional taxes will be double taxing the carried interest.
Sen. Schumer, who pledges to work with President-elect Trump despite disagreeing with the new president on almost every major issue of public policy, can be expected to seek legislation to tax carried interest.
Schumer recently stated, “if the president-elect proposes legislation on issues like infrastructure and trade and closing the carried interest loophole, for instance, we’ll work in good faith to perfect and potentially enact it.”
In other words, if Trump will go along with economically destructive ideas like taxing carried interest, that are advocated by liberal Democrats such as Sen. Schumer, they are will work with him on those issues. Trump should reject calls for policies like that, which will not bring about prosperity, and instead should insist Democrats work with him on the priorities for which the American people elected him president.
Carried interest income, if taxed, would be like capital gains income – both would be taxed twice. Capital should never be taxed doubly because it is what the free market economy is based on. All new business creation, or expansion of existing business requires capital. Therefore, taxing capital leaves less for investment that leads to the creation of new jobs.
Politicians on the left, such as Sen. Schumer, see taxing capital as a “fairness” issue and can be expected to suggest the fund manager should pay taxes on this carried interest income. But this income has already been taxed by corporate taxes. There is nothing “fair” about taxing this income again, especially when this will come at the expense of the investment and job creation that will occur otherwise. Trump and Republicans in Congress will need to stand strongly against ideas like taxing carried interest, and remind politicians like Schumer that elections have consequences, and ideas like this were rejected by voters last November.
While Trump has strongly pledged to seek policies that will grow the economy and create millions of new jobs, he should reject calls from tax and spend members of Congress to add more taxes. While new tax revenue would give members of Congress, who have already shown they can’t restrain their tendency to spend the people’s money with excess, more money to spend while taking it from those who most need it – the millions of unemployed who need the jobs that a booming economy would create.
While taxing carried interest income might sound like an issue that appeals to the average voter on main street, because those welcome fund managers should pay their fair share, it’s very much an issue for those voters. The jobs that will be created, that will improve the standard of living for millions who are currently unemployed or under-employed, depend on that capital being invested in job creation rather than taxed away for wasteful government spending by politicians in Washington D.C.
If Sen. Schumer pushes for taxing carried interest, President Trump should give him a Reaganesque type “there you go again” response and challenge the new Minority Leader to work with him on infrastructure and other ways of creating jobs, rather than destroying them.