The recent tax-reform legislation was very complicated and many features of it will be the center of lively debates at least through the November 18 election.

One such debate will surely concern the tax treatment of “carried interest,” a long-standing feature of U.S. income tax law that foes regularly refer to as a “loophole,” which of course is never a term one uses to describe something one supports.

Carried interest is the share of the profits of investment partnerships (including venture capital and private equity firms) that goes to fund managers as part of the compensation for their managerial labors. It is “sweat equity,” or a performance bonus, in partnership form.  The loophole is that carried interest is taxed at the capital gains rate, not the ordinary income rate, a tax savings that can be enormous.

The President was very clear during the 2016 campaign that he wanted to close this loophole. It was an issue of some importance, especially against Ted Cruz during the Republican primary season, because it helped Trump establish his populist credentials, in favor of Main Street and against the machinations of Wall Street. Yet somehow the legislation in its final form left the loophole(mostly)  intact. Why was that?

Right Wing View

It should be said that the treatment of carried interest was modified somewhat in the bill. Specifically, capital gains treatment was limited to assets held for three years. So investment managers who want to use this loophole have to be willing to wait before cashing out their interest.

Still, the President has been emphatic that the carried interest rule needs to be “gone,” as he said in May.

The administration’s response to questions about why it still isn’t “gone” has been mostly … to change the subject.

Some conservatives defend the cap gains treatment of carried interest, although their numbers are few, and for the most part their defense tends toward the tautological: it’s a capital gain so should be treated as a capital gain.

Some on the right who buy into the populist themes that did a good deal to secure Donald Trump’s election as President last year are furious about the disappearance of this issue from his agenda.

Fox News host Tucker Carlson tweeted that the loophole is “mostly preserved in the final GOP tax bill, despite Trump’s promise to eliminate it,” and asks “who preserved it?”.

That question has become the theme of the Right’s discussion of the issue, as the populists look for who in the party to blame, and thus who to purge.

In a more Stoic spirit, Karoli simply notes, “The wealth preservation industry is well-stocked with loophole experts.”

Left Wing View          

While the populist right is unhappy, the left – especially the center left – is furious. In Slate, Jordan Weissman complains that the changes to carried interest treatment are minor and “cosmetic” and says they “won’t affect private equity guys.”

Kurt Eichenwald tweets, “No country in the history of humanity has EVER cut taxes in a relatively strong economy with full employment and massive government debt.  EVER. There is NO economic theory that supports doing it.”

Joy Reid says that “Republicans have trained their voters to have blind, complete trust in corporations and the rich to take care of them….”

A little further to the left, though, one sees a somewhat different reaction: some commenters are happy that the Republicans have given them a gift just a little more than ten months before the Congressional elections. Or, rather, a package of gifts of which the carried interest business is just one.

Matthew Yglesias in Vox says that Republicans could have helped themselves by picking “the low-hanging fruit of the revenue-raiser world (things like closing the carried interest loophole) and then expended it on something popular and hard to take away (middle class tax cuts).” Instead, they did the contrary, an “extremely risky gamble.”