Capitol Gains

Private equity's favorite tax break is one of Washington's favorite punching bags. So why can't anyone get rid of it?

- By Tim Murphy. Illustration by Jordan Awan

If you were to sit down with a focus group and a whiteboard, you would have a hard time coming up with a policy with less populist appeal than the nearly three-decades-old loophole that cuts private equity billionaires' tax rate almost in half.

The carried-interest loophole, Barack Obama said, upset the balance between work and wealth. Donald Trump claimed the fund managers who availed themselves of this tax break were getting away with murder. Joe Biden, like both of his predecessors, ran for president on a pledge to end it.

People get this really easily-we're giving a whole lot of rich people more money for no reason other than them being rich, says Mandla Deskins, advocacy manager at Take on Wall Street, an organization pressuring members of Congress to jettison this tax break.

On paper, it's an idea that almost nobody says they want. Polls show the public is overwhelmingly against it. Mitt Romney lost his bid for the presidency in part because of it. Tax experts think it's unfair. Carried interest has no real constituency outside certain corners of Nantucket. But for a decade and a half, private equity's favorite tax break, which delivers hundreds of millions of dollars annually to the guys in blue button-downs and matching fleeces who bought your company and laid you off, has been the most unkillable bad idea in a town with no shortage of them, a testament to the unstoppable combination of money and inertia.

Well, money mostly.

It's not necessarily dead, Deskins says of the most recent effort to close the loophole, but it is definitely on pause.