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Speaker Johnson Shows Prudence on Carried Interest Debate

  • Writer: Staff @ LPR
    Staff @ LPR
  • 11 hours ago
  • 3 min read

Updated: 11 hours ago


Speaker Mike Johnson answers questions about carried interest deduction at a recent press conference.

As Republicans in Congress prepare to release the framework of President Trump’s much-anticipated tax package, one tax provision continues to spark outsized debate: the treatment of carried interest.


Often derided by populists on the left and right as a “loophole for the rich,” carried interest is, in reality, a fundamental feature of how long-term investment capital is rewarded in the U.S. economy. Calls to eliminate it may sound politically appealing, but the economic consequences of such a move would be real—and potentially damaging.

The current tax treatment allows general partners in private equity, venture capital, and real estate partnerships to pay capital gains rates—rather than ordinary income rates—on profits from successful investments, so long as those profits are tied to long-term capital at risk. That incentive structure encourages precisely the kind of patient, risk-bearing investment that builds companies, funds infrastructure, and supports innovation across the American economy.


Speaker of the House Mike Johnson, when asked this week about carried interest, offered a refreshingly pragmatic view. “I’ve listened to the discussion, a very thoughtful discussion back and forth amongst interested parties,” he said, noting that the Ways and Means Committee has spent “scores of hours… gaming out the very ideas” under consideration. “We’ve heard from interest groups around the country, and we want to do right by them.”


Johnson, wisely, isn’t tipping his hand too early—but his comments make clear that Republicans understand the value of investor certainty and capital formation. “At the end of the day,” he said, “this will be the biggest legislation in many decades… It’s going to be a turbo boost to the economy… and send a message of stability to the markets, the bond market, the stock market, investors, job creators, entrepreneurs.”


That message—stability—is exactly what investors need right now.


The debate over carried interest isn’t new. It’s been targeted by politicians going back to the Obama administration, and even President Trump took aim at it during his 2016 campaign. But in practice, efforts to eliminate it have always run into the same problem: the economic logic behind the provision holds up.


Investors take real risks with long-term capital. Without the potential for capital gains treatment, the incentive to fund speculative, early-stage, or high-risk ventures diminishes. And those ventures are often where the greatest breakthroughs happen—whether it’s a biotech startup in Boston, a logistics platform in Texas, or a manufacturing hub in Louisiana.


What’s more, the beneficiaries of carried interest are not limited to Wall Street executives. Pension funds, university endowments, and charitable foundations all invest in the private equity and real estate funds that rely on carried interest to attract and retain top talent.


Scrapping the current tax treatment may make for good campaign rhetoric, but it won’t bring in meaningful revenue. According to the Congressional Budget Office, eliminating carried interest raises only a modest amount over a decade—hardly enough to justify upending the private investment ecosystem.


As Republicans prepare to push forward on what may become the signature economic legislation of this Congress, they’d be wise to follow Speaker Johnson’s lead and keep their focus on growth, stability, and smart tax policy.


Preserving carried interest isn’t about protecting the wealthy. It’s about preserving the engine of American investment and ensuring the U.S. remains the most attractive place in the world to launch, grow, and invest in a business.


And in a global economy where capital is more mobile than ever, that’s a competitive advantage the U.S. cannot afford to lose.

 
 
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