President Barack Obama, seizing on a lifeline from Republican presidential candidates, is dusting off his campaign to end a tax break exploited by private-equity managers, venture capitalists and some hedge fund executives.
Using the backdrop of a budget fight with Congress that is threatening a government shutdown, Obama made his pitch to some of the nation’s top chief executives to tax income earned by fund managers, called carried interest, as ordinary income instead of capital gains.
“Keeping this tax loophole, which leads to folks who are doing very well paying lower rates than their secretaries, is not in any demonstrable way improving our economy,” Obama told executives at a Business Roundtable gathering Wednesday in Washington.
Rising income inequality has made hedge fund managers the target of Democrats and Republicans seeking the 2016 presidential nomination, and some Republicans in Congress have expressed openness to the idea of raising the tax rate on carried interest.
Any push to make the change is a long-term play. House Ways and Means Committee Chairman Paul Ryan has said the proposal won’t make it into the tax debate at least until 2017, when a new occupant will be in the White House, and Republicans will attempt to revamp the entire tax code.
While Obama has pushed for raising the tax since first taking office, the issue got a boost from Republican presidential candidate Donald Trump, who said at a news conference last month that “hedge fund guys have to pay up.”
Former Florida Governor Jeb Bush, another Republican contender, made taxing carried interest as ordinary income part of his campaign platform. Bush’s plan also would lower rates on both ordinary and capital income, significantly softening the blow of the carried interest change.
Critics of Obama’s plan include Republicans in Congress and hedge fund executives on Wall Street.
“President Obama is obsessed with raising taxes to pay for more Washington spending,” Cory Fritz, a spokesman for House Speaker John Boehner, said in an e-mail.