For more than a decade, Democratic leaders have pledged to eliminate a loophole that lets Wall Street executives pay a lower tax rate on their income than everyone else. The so-called carried interest loophole has been slammed by former vice president Joe Biden. Even President Donald Trump has pretended he wants to do away with it.
And yet, Democratic legislation to call Trump’s bluff and fix the problem is bottled up in the powerful tax-writing committee chaired by US representative Richard Neal — a Massachusetts Democrat who once helped lead the effort to eliminate the loophole but who has lately been raking in campaign cash from finance industry donors that have lobbied to preserve it.
Neal’s Wall Street donors have an interest in helping him defeat progressive Holyoke mayor Alex Morse in this Tuesday’s Massachusetts congressional primary: If Neal loses reelection, the next Ways and Means Committee chair could be representative Lloyd Doggett (D-Texas), who has been a vocal critic of the finance industry and the carried interest loophole.
That tax provision currently allows some private equity, hedge fund, venture capital, and real estate industry executives to avoid classifying a portion of their earnings as regular income, and instead label it capital gains, which is subject to lower tax rates. Eliminating the tax break could generate roughly $180 billion of new public revenue over a decade, according to government estimates.
Neal’s office did not respond to a request for comment.
Neal Supported Democratic Legislation That Is Now Stuck in His Committee
In 2007, Neal cosponsored former Democratic representative Sander Levin’s legislation to end the loophole, and President Barack Obama campaigned in support of the cause. When Democrats controlled both houses of Congress under Obama, they did not pass the measure.
In 2013, the private equity industry’s lobby group, then known as the Private Equity Growth Capital Council (PEGCC), boasted that Neal was a headline speaker at its annual conference as the group was successfully combating Obama’s efforts to close the loophole. The group, which is now called the American Investment Council, said that Neal and other lawmakers “spoke on aspects of legislative and tax policy important to our membership, including carried interest and interest deductibility.”
In the 2015 and 2017 congressional sessions, Neal opted not to cosponsor Levin’s legislation to eliminate the carried-interest tax preference. One industry trade publication reported that “in 2017, Neal and then-Ways and Means chairman Kevin Brady (R-TX), helped preserve the carried interest tax loophole lobbied for by Wall Street firms.” PEGCC that year touted a letter from conservative lawmakers pressuring Neal and Brady to preserve the loophole.
That same election cycle, donors from the securities and investment industries poured more than $232,000 into Neal’s campaign. Neal’s top campaign donor that year was Votesane PAC — a political action committee run by real estate lobbyists that acts as a conduit for industry donors, according to an investigation by Sludge.
Big Money From Donors That Benefit From the Loophole
In the current congressional session, Neal became chairman of the Ways and Means Committee, where the carried interest bill is now stalled, despite Democrats controlling the House.
At the same time, Neal has received nearly $500,000 combined in the current election cycle from the real estate industry and the securities and investment industries.
Three of Neal’s top four donors are contributors from Votesane, Capital Group, and Blackstone — the latter two being major private equity firms. Neal also received a $12,000 PAC donation from the National Venture Capital Association. Blackstone and the National Venture Capital Association have lobbied lawmakers on the carried interest issue, according to federal records.
In addition, Neal received a $10,000 PAC donation from the Mortgage Bankers Association, and his campaign has been boosted by $63,000 in digital ads from the National Association of Realtors. Both of those groups coauthored a letter urging lawmakers to block the carried interest legislation that is stalled in Neal’s committee.