Preferential tax treatment of carried interest
Investment fund managers' share of a fund's profits is taxed as capital gain, not as pay for services.
Not a JCT tax expenditure line: JCT does not score carried interest separately, and it is absent from JCX-45-25, which is why this entry was removed from the dataset until a citable estimate could be found. This is CBO's published deficit-reduction estimate for taxing carried interest as ordinary labor income and applying self-employment tax to it, the mirror image of the provision's current cost. The published annual profile ramps from $0.5B in FY2025 to $1.6B in FY2034 as the change phases in; $1.3B is the figure CBO gives for FY2027, FY2028 and FY2029 alike, and it also equals the ten-year (2025-2034) average of $13.0B ÷ 10.
Carried interest is the share of a fund's profits paid to its general partners as compensation for managing other people's capital, in private equity, hedge, real estate and venture funds. Eligibility is defined by that structural role, not by income level, and the population able to receive it at all is narrower than for any other item in this dataset.
Structural reading
The clearest illustration on this list of the gap between a loophole's reputation and its enacted history. Carried interest has been a live target for closure since at least 2007, survived the 2017 tax act with only a three-year holding-period constraint that most private equity funds already clear in the ordinary course of business, and came within one senator's vote of a real tightening in 2022 before that senator required its removal as the price of her support, a single veto point deciding a provision worth billions annually. It is also absent from JCT's own tax expenditure tables, not because it is small but because JCT does not score it as a distinct item; the closest thing to an official cost estimate is CBO's repeal-side projection, built from the same JCT staff models everything else in this dataset draws on. Structurally it is the narrowest transfer here: it requires being a general partner of an investment fund, a population small enough that no distributional table exists to describe it, which is itself a data point about how well-defined the beneficiary class is.
Who gets it
The channels the benefit actually flows through, described by asset position, entity form and form of return. Never by named individuals.
Cost split by the concentration score. That score is a judgement rather than a published figure, so treat this as the scale of the split, not an audited allocation.
- General partners of private equity, hedge, real estate and venture funds
Carried interest is paid only to the side of a fund partnership performing investment management services; limited partners providing capital receive ordinary investment returns, not carry.
- Funds whose holding periods already exceed three years
Since 2018 the preferential rate requires the underlying asset be held more than three years, up from one. Buyout private equity, where multi-year holds are already the norm, sees little practical constraint from the threshold TCJA added.
- Managers able to structure pay as a partnership allocation rather than a fee
Routing compensation through a profits interest rather than a cash management fee converts what is functionally payment for labor into capital gain, avoiding both ordinary rates and self-employment tax.
Who pays
Wage and salary earners, whose labor income is taxed at ordinary rates for economically comparable services, and taxpayers generally through the resulting revenue shortfall.
Sector aggregate covering many tax and regulatory issues, not specific to carried interest. The industry's dedicated trade association, the American Investment Council, lobbies specifically on this issue but is not broken out separately here.
This transfer follows a general pattern, asymmetric organisation, sustained expert attention, and scheduled expiry dates.
How rent-seeking works →Legislative history and accountability
Enacting statutes, major amendments, recorded votes with party breakdown, and live reform proposals.
Enabling legislation
- IRS profits-interest guidance (Revenue Procedures 93-27 and 2001-43)
IRS guidance established that receiving a profits interest in a partnership in exchange for services is generally not a taxable event, and that the resulting interest is a capital asset. Combined with the ordinary partnership-tax rule that a partner's distributive share retains the character of the partnership's income, this is what lets a fund manager's profit share be taxed as capital gain rather than as compensation.
No separate recorded vote on this provision, it passed by voice, predates recorded electronic voting, or moved inside a larger package voted on as a whole.
Major amendment
- Tax Cuts and Jobs Act of 2017, §1061P.L. 115-97Dec 22, 2017
Added IRC §1061, the only enacted narrowing of carried interest's tax treatment: gain on an applicable partnership interest is recharacterised as short-term unless the underlying asset is held more than three years, up from the one-year threshold that otherwise applies to capital assets.
houseDec 20, 2017· Agreed to, 224-201Who voted which way: full roll callDemocratic0 yea189 nay0% yeaRepublican224 yea12 nay95% yeasenateDec 20, 2017· Agreed to, 51-48Who voted which way: full roll callDemocratic0 yea46 nay0% yeaRepublican51 yea0 nay100% yeaIndependent / other0 yea2 nay0% yea
Reform proposal
- Proposal to extend the holding period to five years and close the S-corporation carry loophole
The Manchin-Schumer reconciliation framework that became the Inflation Reduction Act originally extended §1061's three-year holding period to five years and closed a related S-corporation workaround, estimated to raise roughly $14B over a decade. It was dropped during final negotiations after Senator Kyrsten Sinema made its removal a condition of her vote, and a new 1% excise tax on stock buybacks was substituted to hold the bill's revenue total.
- Carried Interest Fairness Act and similar proposals to tax carry as ordinary incomelive
Reintroduced in nearly every Congress since 2007 to recharacterise carried interest fully as ordinary labor income subject to self-employment tax. None has received a floor vote in either chamber.
Lobbying around this provision
This is not campaign money, and it is not attributable to the votes above. Lobbying disclosures record what organisations spent engaging policymakers across an entire issue area over a quarter. They are not broken out by party, by member, or by bill, and no part of this figure can be traced to any vote on this page. It is shown as an indicator of how organised the interest around this provision is, nothing more.
Demonstrating an actual relationship between money and votes would require campaign contribution records matched to each member of the roll call. That is a different dataset and is not yet built here.
Senate LDA filings, search disclosures by filer and issueSources and data freshness
One to two years old. Likely still the most recent published estimate. Figures marked unverified are seed estimates that have not been reconciled line-by-line against the primary source document. See the methodology for how each score is constructed.
Cite this figure
CBO, Options for Reducing the Deficit: 2025 to 2034, "Tax Carried Interest as Ordinary Income" (built from Joint Committee on Taxation staff estimates), published Dec 12, 2024. FY2027 estimate for "Preferential tax treatment of carried interest": $1,300,000,000. https://www.cbo.gov/budget-options/60946 Via RentSeek, https://rentseek.bothand.tech/transfer/carried-interest
The primary document is cited first on purpose. Send your reader to the source table rather than to this site, which is a finding aid and not the authority for any figure on it.