Trump Wanted to Close This Wall Street Tax Loophole. Republicans Left It Out.

A provision to eliminate Wall Street’s favorite tax break — pushed by President Donald Trump — was conspicuously absent from House Republicans’ tax bill following an expensive lobbying campaign by the private equity and venture capital industries.

The lobbying campaign kicked into high gear after President Donald Trump told Republicans earlier this year that he wanted to close the so-called “carried interest loophole,” referring to the significantly lower tax rate for profits on certain investments compared to ordinary income.

“There was a lot of concerns about what it was going to do to the private equity industry,” Rep. Kevin Hern, a member of the Ways and Means Committee, told NOTUS when asked why the provision did not make it into the tax bill.

Another committee member, Rep. Aaron Bean, told NOTUS that the committee debated the issue but ultimately decided the drawbacks — which the private equity industry has been loudly trumpeting — were too great.

Bean also said the committee “explored some different timelines of how long you carry” the investments, which was extended to three years during the 2017 tax bill to exclude the short-term gains of hedge funds. But no changes to that timeline made it into the Ways and Means bill, either.

“There was debate, but we leaned on the side of all of the things that would suffer as a result of that one little niche of the hedge, the billionaire hedge funds,” Bean said.

“If you were to take that out, all these innocent bystanders of a small Main Street and energy and all the other good things, it just far outweighed the balance and it shifted towards not picking up the issue,” he added.

Critics argue these earnings should not receive preferential tax treatment, and private equity’s bad reputation and controversial business model has only increased scrutiny. But repeated efforts to kill the carried interest loophole have failed, and its absence in the Ways and Means bill that passed out of committee along party lines Wednesday morning was a notable — if not definitive — win for industry.

That said, the industry isn’t celebrating just yet. The bill still has a long way to go before it reaches the president’s desk, with plenty of opportunities for amendments and negotiations. It’s not clear whether the president will make this a bigger priority as the reconciliation bill progresses.

A Trump administration official told NOTUS that this was the first version of the tax bill with the expectation that more negotiations will take place. The White House declined to comment on whether Trump would call on the House to eliminate the loophole.

“We considered everything that the president asked for and tried to figure out if it fit in or not and if it was going to impact the private equity industry, which is our answer to China’s direct investment in industries,” Hern said.

A spokesperson for the Ways and Means Committee’s chair, Rep. Jason Smith, told NOTUS that they “delivered on the president’s priorities and extending the Trump tax cuts. This is the bill that was able to pass the Committee.”

When Congress considered closing the carried interest loophole during negotiations for the 2017 Tax Cuts and Jobs Act, the Congressional Budget Office said doing so could bring in $14 billion in tax revenue over 10 years. But the private equity industry has been warning lawmakers that raising the tax rate would eliminate incentives for fund managers to make certain investments, costing communities tax revenue in the long run.

Rep. Adrian Smith, another Ways and Means Committee member, called the decision a “judgment call” based on “the overall amount of revenue versus the potential negative impact and disincentive on investment and so forth.”

Drew Maloney, president and CEO of the American Investment Council, which represents the private equity industry, said that the “President’s 2017 law struck the right balance on carried interest” and they are “pleased that the new legislation will encourage more long-term investment across America.” The National Venture Capital Association, which has also been lobbying against eliminating the tax break, did not respond to requests for comment.

Private equity invested more than $1 trillion in the United States in 2021, according to the American Investment Council. Currently, profits on investments held for more than three years are taxed at the long-term capital gains rate of 20% — a significant discount compared to the regular income tax rate, which can be as high as 37%.

While lawmakers and industry argue these investments should be incentivized through the tax code, many economists disagree. One study found companies acquired by private equity were more likely to go bankrupt than those that were not. And a record 110 U.S. companies backed by private equity and venture capital filed for bankruptcy in 2024, according to S&P Global, with more than half coming from health care and “consumer discretionary” sectors.

Private equity’s business model also has a bad reputation. After private equity firms buy a company, they “work to improve efficiencies and boost growth,” according to the American Investment Council — which often means cutting jobs and taking on debt. Then they sell the company for a profit, which is where carried interest comes in.

Presidents Trump, Joe Biden and Barack Obama have all tried and failed to close the carried interest loophole, most recently following an all-out eleventh hour lobbying blitz that got then-Sen. Kyrsten Sinema to stake her support for the Inflation Reduction Act on the removal of such a provision.

There appeared to be real momentum this time around after Trump outlined his tax agenda to lawmakers shortly after taking office.

“Sometimes if there’s not a slam dunk in the votes, you do certain things further in the process, or at least look at it if you need the capacity,” Rep. David Schweikert, a member of the Ways and Means Committee, told NOTUS when asked why the bill did not close the carried interest loophole.

“Everything is a potential until it’s done,” he said.

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Taylor Giorno is a reporter at NOTUS. Jasmine Wright, a reporter at NOTUS, contributed to this report.