Lobbyists shielded carried interest from Biden's tax hikes, top White House economist says
- Senior White House economic advisor Jared Bernstein pointed to tax lobbyists as the reason the "carried interest loophole" was not included in a group of tax hikes Democrats intend to pass.
- "This is a loophole that absolutely should be closed," he told CNBC. But "when you go up to Capitol Hill and you start negotiating on taxes, there are more lobbyists in this town on taxes than there are members of Congress."
- Democrats and economists have long argued that private equity profits should be taxed at the personal income level, not the lower capital gains rate.
- But private equity firms spend millions of dollars a year on lobbyists who fight any effort to change how carried interest is taxed. So far, the lobbyists are winning.
WASHINGTON — Fierce lobbying by the private equity industry is the reason the carried interest tax rate is not included in President Joe Biden's planned tax hikes, top White House economist Jared Bernstein told CNBC on Thursday.
Biden and congressional Democrats are hoping to pass a sprawling budget, much of which is paid for with revenue from a laundry list of tax changes, including higher rates for the wealthiest Americans and corporations.
But closing the so-called "carried interest loophole" by taxing private equity profits at personal income rates, instead of at lower capital gains rates, is not on that list.
"Squawk Box" anchor Andrew Ross Sorkin pressed Bernstein on how this simple change, long championed by Democrats in Congress, managed to avoid being on the list.
"This is such a glaring privileged position for a certain group of people over just about everybody else," said Sorkin. "For those that look at the tax policy as a part of a democracy, where people have to believe in it, they say, 'This makes no sense.'"
"You make a good point," Bernstein replied.
"This is a loophole that absolutely should be closed," he said. But "when you go up to Capitol Hill and you start negotiating on taxes, there are more lobbyists in this town on taxes than there are members of Congress."
Indeed, last year 4,108 individual lobbyists formally registered to lobby Congress and the Executive Branch on the issue of taxes, according to the Open Secrets lobbying database. Hundreds more likely worked to influence federal tax policy on behalf of clients but did not formally register as lobbyists.
For private equity firms, keeping their tax rate at the lower capital gains level is their top priority in Washington and has been for years.
The private equity industry has spent millions of dollars on lobbyists to fight any effort to change how it is taxed. And so far, the plan appears to be working.
The industry has contributed hundreds of millions of dollars to congressional campaigns, $600 million total over the past decade, according to a New York Times analysis earlier this year.
During the 2020 election, Biden's presidential campaign received over $3 million from those working in private equity and various other types of investment funds, according to data from the nonpartisan Center for Responsive Politics. He was the top recipient of campaign money from that industry in the last cycle.
Nearly 60% of campaign donations from those in the private equity industry during the 2020 election went toward Democratic candidates for federal office.
— CNBC's Brian Schwartz contributed to this article.