Republicans weigh ending Wall Street’s favorite tax break

Republicans are considering doing away with one of Wall Street’s favorite tax breaks at the encouragement of President Trump, one that has long enjoyed Republican support and that could put up yet another obstacle on the road to a tax bill.

The tax break on carried interest — often called the carried interest loophole — allows the managers of investment funds such as private equity firms and hedge funds to count their income as capital gains and thereby have it be subject to a lower tax rate.

The tax rule, which has been debated by lawmakers for more than a decade and has come within a hair’s breadth of getting canceled in previous legislative fights, would affect compensation levels at some of Wall Street’s most powerful firms.

Republicans say that canceling the tax break would improve the public perception of their tax law, which includes many tax breaks for business owners and other taxpayers at the top end of the income spectrum.

However, ending the tax break could make extending the Trump tax cuts seem more egalitarian, Republicans said. According to one distributional analysis of the extensions by the Institute on Taxation and Economic Policy (ITEP), the richest 1 percent would receive an average tax cut of around $36,300 while nearly all other income segments would actually see a tax increase.

Amid such a skew, Republicans are seeing the appeal of targeting a Wall Street-focused tax break, though they say the discussion is still in early stages.