By Mari Hansen Washington’s inability to close the carried interest loophole has a distinct rhythm, and after watching it a few times, you can practically predict the beats. It’s outrageous, according to a presidential candidate. A bill is drafted. Park Avenue lobbyists begin reserving flights to Reagan National. The clause then subtly vanishes from the text during the last hours of negotiations, and since no one had anticipated it would survive in the first place, no celebration is held.
In 2025, it occurred once more. In a February meeting with Republican leadership, Donald Trump, who claimed in 2016 that private equity managers were “getting away with murder,” added the loophole to his list of issues to address. Carried interest remained unaltered by the time the so-called big, beautiful tax bill passed Congress that summer. About nine years apart, the same promise and result. You begin to question whether the ritual now includes the promise itself.
For those who haven’t kept up with this, carried interest is the portion of profits that private equity and hedge fund managers take, typically about 20%. The way it is taxed is the trick. If an investment is held for three years or more, the cut is treated as a long-term capital gain, with a maximum of about 20%, rather than ordinary income, which rises to 37%. The lower rate on carried interest benefits fund managers and costs the Treasury money because a couple filing jointly and earning less than $207,000 is subject to a 22 percent rate, while many finance executives are in the top brackets. That arrangement is not included in the salaries of teachers and nurses.
On paper, the politics appear lopsided, but it doesn’t seem to matter. Lawmakers such as Barack Obama, Elizabeth Warren, and Trump himself have advocated for the taxation of carried interest as ordinary income for about 20 years. That coalition, which includes a Republican president and democratic socialists, still loses. There is a perception that the loophole endures because very few people are prepared to invest significant political resources to close it, rather than because anyone vociferously defends it.
The inertia is explained in part by the money. In the first quarter of 2025 alone, private equity associations spent $710,000 advocating for the continuation of the current treatment. Furthermore, the stakes might be higher than the official scorekeepers had long thought. Going beyond previous attempts, Senator Ron Wyden reintroduced legislation in April 2026 to close the loophole by taxing managers’ carry annually as ordinary income instead of waiting for gains to be realized. According to an updated analysis by the Yale Budget Lab, the revenue at stake is significantly higher than previous congressional estimates, potentially reaching tens of billions over a ten-year period. That is a significant sum of money to continuously lose to a clause that everyone says they detest.
I keep thinking about what a Mother Jones writer noted in 2022: the loophole endures because it is too small to jeopardize an entire bill, not because it is too big to fail. It’s an uncomfortable read. The headline is never carried interest. It’s the negotiating chip that always seems to be on the table but never quite gets cashed, the item traded away at two in the morning to make room for the bigger package.
It’s difficult to avoid feeling a certain weariness mixed with a grudging respect for the thing’s durability after seeing it happen so many times. There is Wyden’s bill. There is genuine bipartisan annoyance. It’s still unclear if any of that results in a different conclusion or if a different candidate, speech, or provision is quietly implemented prior to the vote in 2027. For thirty years, the pattern has persisted. Rarely has betting against it paid off.