Illinois Takes Action on Hedge Fund Loophole

As President Trump backtracks on campaign promises to crack down on Wall Street, state-based lawmakers and activists are taking matters into their own hands.

On May 23, the Illinois State Senate became the first legislative body to pass a bill to end one of the most outrageous examples of Wall Street privilege – the so-called "carried interest" loophole. This loophole allows private equity and hedge fund managers to claim most of their earnings as capital gains rather than ordinary income, cutting their tax bills nearly in half. This means some of the wealthiest Americans pay a lower tax rate than millions of middle-income workers.

A New York carried interest bill could move forward in the near future. Legislators have introduced similar bills in five other states (New Jersey, Connecticut, Rhode Island, Massachusetts, and Maryland), and activists are developing campaigns in several more. Sen. Tammy Baldwin (D-Wis.) and Rep. Sandy Levin (D-Mich.) have introduced federal bills to close the carried interest loophole.

On the campaign trail, President Trump promised repeatedly to get rid of the carried interest loophole, saying it allowed hedge fund managers to "get away with murder." But now that he's surrounded himself with Wall Street insider advisors, Trump has issued a tax plan that doesn't mention this loophole.

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