Less than an hour earlier, David Rubenstein, co-CEO of Carlyle Group, had been urging his fellow 1 percenters at an annual hedge-fund gathering to “focus on giving something back to society.” Then another financial bigwig, former Treasury Secretary Larry Summers, challenged a controversial tax break that benefits Rubenstein as much as anybody: the “carried interest” provision, sometimes derided as the tax break for billionaires.
“Rarely has a policy persisted for so long in the face of such weak arguments in its favor,” Summers said directly to Rubenstein during a panel discussion at the Skybridge Alternatives conference, known in the industry as SALT. Rubenstein has been a strong supporter for the loophole, which benefits private-equity firms such as his, in particular, and he’s also a long-time Washington insider considered one of his industry’s most capable advocates. Summers obliquely suggested Rubenstein has played a big role keeping the tax break alive for firms like his, through deft lobbying among pals in Congress.
Another former Treasury Secretary, Robert Rubin, joined in the fun, citing a wonky cliché attesting to the tax break’s invulnerability: “There’s the first amendment, there’s the second amendment, and then there’s carried interest,” he said.
Carried interest is a hot topic because it allows certain wealthy investors to pay tax on some income at the capital-gains rate of 20% rather than the top income tax rate of 39.6%. Democrats, including both Summers and Rubin, have long called for its repeal, and even Republican presidential candidate Donald Trump has said he’d do away with it.
If Washington ever gets around to serious tax reform, the carried-interest provision seems likely to be one of the first loopholes to get the ax. Yet it has already survived far longer than many critics ever thought. Rubenstein would rather not talk about it. As the panel discussion moved on to other topics and eventually ended, he concluded, “Sorry we ran out of time on carried interest. We’ll have to cover it another time.“
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Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman .