President Donald Trump's plan to abolish a tax break for hedge fund managers was kept out of the final tax overhaul legislation — an act of defiance by congressional leaders who exploited a split among Mr. Trump's advisers.
White House economic adviser Gary Cohn wanted to end the carried interest break, while Treasury Secretary Steven Mnuchin successfully urged keeping it with new limits, according to four people familiar with the matter. Ultimately, the administration's split gave Republican lawmakers an opening to ignore the president's wishes, said the people, who asked not to be named to talk about private discussions.
Mr. Trump — who'd made abolishing the little-known tax break part of his 2016 presidential campaign — made a last-ditch effort to kill it, but ultimately gave in. Two days before Congress took its final votes on the tax legislation, Mr. Trump called top aides on the White House tax team and said: "I want it out," said one of the people. He demanded that Mr. Cohn and the White House legislative affairs director, Marc Short, kill the tax break, the person said.
But Mr. Mnuchin didn't agree. Nor did Republican leaders in Congress. Mr. Trump wasn't happy with the outcome, but he has put aside that displeasure to celebrate the overall passage of the bill — the first major legislative victory of his administration. Mr. Trump signed the bill Friday.
Carried interest is the portion of an investment fund's returns that are paid to fund managers. It's treated as capital gains, meaning it's currently eligible for a tax rate of 23.8% on sales of assets held for at least a year. The top individual tax rate is 39.6% now, and it'll be 37% as of Jan. 1.
Mr. Mnuchin's support proved helpful for lobbyists seeking to preserve the preferential rate, who had readied for battle after Mr. Trump slammed hedge fund managers as "paper pushers" who are "getting away with murder" via carried interest during the 2016 campaign.