Why Wall Street’s Favorite Tax Break Is a Biden Target

One of the most reviled loopholes in a tax code full of them is under threat again. While the average American worker must pay the standard tax rate on their income, wealthy private equity managers and venture capitalists are able to pay a lower capital gains rate on one of their main forms of compensation. That’s made the so-called carried interest loophole a favorite target of politicians who call it part of a system rigged to benefit the rich, while exacerbating income inequality. Despite that, through the years, the private equity industry has successfully lobbied to keep the provision.

It allows private equity and venture capital managers to pay a more favorable tax rate on one of their main forms of compensation. Managers are able to pay a 20% long-term capital gains rate on their cut of the profit on the deals they make rather than get taxed at the 37% top rate for ordinary income.