Investment managers would pay higher taxes on the “carried interest” that makes up much of their income under Donald Trump’s tax plan, said Wilbur Ross, the billionaire distressed-debt investor and Trump supporter.

Saying he wanted to clear up confusion over the Republican nominee’s plan, Ross said Trump would tax carried interest -- that is, the portion of an investment fund’s returns that are paid to investment managers -- as ordinary income. Moreover, Ross said, that plan will not be affected by another Trump proposal that offers a tax-rate cut to income from partnerships, the structure that many investment funds use.

“My carried interest, and everyone else’s, will not be eligible” for that lower tax rate, said Ross, the chairman of WL Ross & Co. Ross represented Trump’s campaign at a tax-policy forum organized Thursday by the Washington-based Tax Policy Foundation. Ross and economist Peter Navarro sought to defend and clarify Trump’s proposals; Gene Sperling, a former White House economist, represented Democrat Hillary Clinton’s campaign.

Under current law, partnerships, limited liability companies and other businesses organized as so-called “pass-through entities” don’t pay income taxes themselves. They pass their earnings to their owners, who are then taxed at their individual tax rates. Trump proposes letting those businesses pay a 15 percent rate on their income. Owners of large pass-through businesses would then pay a 20 percent tax rate on any distributions they receive.

The campaign hasn’t defined what would constitute large or small businesses under its proposal.

The pass-through plan had appeared to conflict with another Trump promise -- to tax carried interest as ordinary income. Currently, carried interest is taxed as capital gains, at rates as low as 23.8 percent -- far below the current top income-tax rate of 39.6 percent. Clinton has also proposed taxing carried interest as ordinary income.
Sperling, representing Clinton, said investment managers would be able to figure out how to qualify for the 15 percent rate Trump proposes.

“I don’t care what he whispers to Wilbur Ross; I don’t care what he whispers to anyone,” Sperling said. “There’s no way you can devise a tax system where the people getting carried interest can’t figure out how to take their current 23.8 to 15.”

Carried Interest

Because many investment firms are organized as pass-throughs, independent policy analysts have said they might qualify for the 15 percent rate that Trump proposes. Ross said that won’t happen. Instead, the 15 percent rate is intended to benefit small businesses, he said. Investment managers would pay more than they already do under Trump’s plan, he said.

“The intent, clearly, is that no taxpayer -- other than those with carried interest -- will be disadvantaged,” Ross said.