Donald Trump’s oft-repeated ambitions to raise taxes on “hedge fund guys” would amount to a tax rate increase of 1.2 percentage points, his tax reform outline released Monday shows.
Trump, the outspoken businessman who is running for president as a Republican, has criticized a feature of the tax code known as the “carried interest loophole” that allows some investment fund managers to have their income taxed at the lower tax rate that applies to investment income rather than at the higher tax rate on ordinary income.
But because Trump also would drop the top individual tax rate from 39.6 percent today to 25 percent, it would make the gap between the tax rate on investment and ordinary income much smaller.
The net effect of Trump’s proposal to eliminate the loophole would be to raise the tax rate on investment income from 23.8 percent today to 25 percent.
Furthermore, his tax reform blueprint says he would eliminate the carried interest provision only for “speculative partnerships that do not grow businesses or create jobs and are not risking their own capital,” a qualifier that could limit the number and kinds of investment managers that would be affected by the rule.
Americans for Tax Reform, a group that opposes tax increases, responded to the plan’s introduction by saying that they were “pleased that the usual target of this Left wing ivory tower tax hike proposal — private equity partnerships — is held harmless in the Trump plan.”
Americans for Tax Reform said that it did object to Trump’s intention to raise the tax rate on carried interest, but noted that Trump’s plan would be a tax cut overall.
Throughout his campaign, Trump has sought to play to populist instincts, including by warning wealthy investment managers that they will face tax hikes. The more populist aspect of his tax proposal, however, may have been the removal of lower-income earners from the tax rolls, rather than the tax increases on the wealthy. He ranks first in the Washington Examiner‘s presidential power rankings.
In Trump’s plan, the reduction in the top marginal tax rate would yield massive tax benefits for high-income earners.
GOP presidential contender Jeb Bush earlier announced a tax plan that would similarly end the carried interest loophole while limiting the top tax rate to 25 percent. Outside analyses of Bush’s reform proposal found that it would create the biggest tax savings for top earners because of the rate reduction.
