- A new study by USC’s Charles Swenson warns that eliminating the carried interest tax break could shrink private equity by 3.94% and venture capital by 2.81%, leading to major job losses and revenue declines.
- Swenson estimates the proposed tax change could result in up to 1.23M job losses and $12.84B in annual federal revenue losses within ten years.
- The real estate sector, responsible for over 14.1M jobs, could also see major downsizing, further straining housing development amid a national shortage.
According to Globe St, a proposal from President Donald Trump to eliminate the carried interest tax break early in 2025 is raising alarms across the private investment landscape. A new study by Charles Swenson of USC’s Marshall School of Business projects major economic fallout if the measure passes.
The Tax Shift
Carried interest allows private equity, venture capital, and real estate managers to pay lower capital gains tax rates instead of higher ordinary income rates. Removing this break would significantly raise their tax burdens, according to Swenson’s findings.
The analysis suggests that higher taxes could push managers away from long-term, riskier investments, instead favoring fee-based or shorter-term strategies. This shift could make it harder for businesses to attract investment, contradicting proponents’ expectations for increased tax revenue.
The Economic Impact
Swenson predicts a 3.94% contraction in private equity and a 2.81% decline in venture capital. The shrinkage could cause federal tax revenues to fall by up to $1.2B in the first year and by as much as $12.84B annually after ten years, largely due to industry downsizing.
In terms of employment, the changes could cost up to 1.23M jobs nationwide.
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Real Estate Under Threat
Real estate, one of the industries most reliant on partnership structures, would also be heavily affected by the carried interest. The sector, which includes more than 2.4M partnerships and LLCs and supports over 14.1M jobs, contributes nearly $90B annually in federal taxes. Swenson’s study warns that downsizing in real estate could deepen the nation’s housing shortage by discouraging investment in new construction.
Why It Matters
Changing the carried interest tax treatment may seem like a simple revenue-raising move, but Swenson’s research suggests it could backfire, shrinking critical industries, increasing unemployment, and ultimately reducing federal tax receipts.
What’s Next
As debate continues in Congress, industry leaders and policymakers will need to weigh the potential long-term economic costs against the short-term political gains of eliminating the carried interest loophole.
