Earlier this week, Senator Tammy Baldwin (D-Wis.) went on Morning Joe to shill for a capital gains tax hike on a type of partnership capital gain known as a “carried interest.”

ATR has written a lot about that subject here and here. Several prominent conservative groups went on the record against a carried interest tax hike.

There’s even an explainer video below put out by the Center for Freedom and Prosperity and featuring ATR’s own Miriam Roff as narrator.

No matter what you think about the issue, we should all be able to agree to get the facts right. Unfortunately, Baldwin and her uncritical hosts got many wrong:

Carried interest is not a “loophole.” This is the term used over and over again by Baldwin and others who want to raise the capital gains tax. All we’re talking about is the capital gain earned inside of an investment partnership. The capital gain is, like any other partnership income, divvied up by the partners according to the partnership agreement. The part of the capital gain allocated to the managing partner is his share of the profit. This is called a “carried interest.” Of course it’s taxed at the capital gains rate–it’s a capital gain, after all.

Republican presidential candidates. There’s a graphic they put up in which virtually every GOP presidential candidate is said to support “closing the carried interest loophole.”


Only one major candidate–Jeb Bush–has called for a tax rate increase on all carried interest capital gains, from 23.8 percent today to 28 percent under his plan.

Donald Trump has called for a limited tax increase on this type of income, but only for short-term, speculative hedge funds. He has carved out investment partnerships that buy businesses and real estate for long term investment, the actual target of Baldwin and others. Even then, the rate hike is minimal, from 23.8 to 25 percent.

That’s it. No other candidate has called for a higher tax rate. Many have explicitly ruled it out:

There is no indication that Dr. Ben Carson would support an increase in taxation on carried interest.

Senator Ted Cruz’s recently released tax plan taxes carried interest as capital gains income. As recently as July 16th of this year, Senator Cruz voted AGAINST amendment S.A. 2177, which called for an increase on the carried interest tax treatment to offset spending for a new federal program. Host Joe Scarborough repeated the incorrect statement that Cruz supports a higher capital gains tax on anyone.

Governor Bobby Jindal would tax all capital gains as ordinary income – at a lower rate – under a three-tier tax rate plan. It’s deceptive to say he’s for a higher tax rate on carried interest capital gains, because he’s for a lower one.

A tax hike consensus that doesn’t exist. Baldwin referenced a “fundamental agreement” in the Senate to raise the capital gains tax on partnership capital gains. 

Maybe in the Democrat cloakroom.

On July 16th, the Senate actually voted on this idea. Every single Republican voted against it.

Fun with fake numbers. Baldwin uses a completely made up score, repeated in a Morning Joe graphic, to claim that raising the capital gains tax rate on partnership capital gains will raise scads of tax revenue.

She says that “nearly $457 billion” will be raised by this tax hike. In fact, that’s the sum total of ALL the tax increases in President Obama’s budget. Oops.

In fact, that same budget indicates that this devastating tax increase would raise a little more than $2 billion per year in additional tax revenue–adding a rounding error to a total tax revenue take of well over $3 trillion. That’s enough to pay for about 6 hours a year of government.

Hedge funds managers don’t pay the capital gains tax today. Under our tax system, there’s only a lower rate on capital gains if the underlying asset sold was owned for one year or more. If you buy and sell assets in less than a year, you pay ordinary income tax.

Baldwin says that hedge fund managers–who fit that latter description to a tee as their business is all about short-term speculation–benefit from the capital gains rate on carried interest. They do not, since they tend to buy and sell assets held for less than one year.

Private equity and real estate investment partnerships, by contrast, buy and hold assets for the long run. When they sell these assets, they are taxed as long-term capital gains, because that’s exactly what they are.