(HedgeCo.Net) – President Donald Trump’s recent proposal to eliminate the carried interest tax provision has met with opposition from private investment industry groups. The current tax structure allows private equity and hedge fund managers to pay a lower capital gains tax rate on a significant portion of their income.?

Drew Maloney, President of the American Investment Council, emphasized the importance of maintaining the existing tax policy to continue supporting long-term investments that benefit jobs, workers, small businesses, and local communities.

The White House, however, views closing the carried interest loophole as a means to offset planned tax reductions in other areas, such as those affecting overtime and tips. The Congressional Budget Office estimated in 2021 that eliminating this loophole could generate approximately $14 billion in tax revenue over a decade.

The debate over carried interest taxation has persisted for over ten years, focusing on the classification of fund managers’ profit-linked compensation as long-term capital gains, which are taxed at a lower rate than ordinary income.?

The National Venture Capital Association argues that carried interest provisions incentivize high-risk investments in innovative startups, contributing to advancements in sectors like artificial intelligence and cryptocurrency. They caution that altering the current system could disrupt progress and disproportionately affect small investors.

Since the 2017 tax overhaul, the private equity industry has reportedly invested over $5.6 trillion into the U.S. economy, supporting approximately 36,000 small businesses. Industry representatives express concern that changes to the carried interest tax policy could hinder the flow of capital to these vital sectors.

As discussions continue, stakeholders are closely monitoring potential impacts on investment strategies and the broader economy.