You may have heard, oh, several thousand times, that Republicans defended their friends on Wall Street when they failed to kill a provision in 2017 that treats “interest” like capital gains instead of regular income. . Well, don’t look now, but that’s how it is in the draft House tax bill.
Carred interest is the share of profits that are received as compensation to partners in a hedge fund or private equity in the form of a performance fee. It is paid only if the withdrawal of funds meets a certain threshold and is held for only three years under the current law. We would not have preferred such a provision if tax rates were significantly lower, but it is a useful incentive to take risk in a high-tax-rate world.