In a meeting with GOP lawmakers, Donald Trump proposed taxing carried interest as ordinary income, a policy that could sharply increase the tax bill for VCs
On Thursday, President Trump asked Republican lawmakers to end tax breaks on carried interest. — The tax break allows private equity …
TechCrunchMarina Temkin
Context & Ripple Effects
The proposal put a core element of venture-fund compensation into the tax-policy debate, exposing a tension between political support for investment and pressure to narrow preferential treatment of investment income.
VC fund managers would face higher personal tax liabilities on carried interest if it were taxed as ordinary income, reducing the after-tax value of successful fund performance.
The proposal immediately creates planning uncertainty for VC partnerships and their limited partners, whose economics are commonly structured around the treatment of carried interest.
Second-order effects
Fund managers could seek to offset lower after-tax compensation through fee structures, fund terms, or compensation mixes, shifting negotiations toward investors and portfolio-company founders.
A tax increase on carry would compound other investment headwinds cited by VCs, potentially making capital deployment and exit-dependent returns more sensitive to policy changes.
Third-order effects
If pursued alongside targeted startup-investment incentives, tax policy could increasingly distinguish between rewarding direct startup ownership and rewarding fund-manager performance—an uneven redesign of venture incentives.
The broader effect would depend on final legislative language: repeated changes to investment-tax rules can make long-duration venture underwriting more dependent on Washington’s policy cycle.
The trend: US technology policy is becoming a more active lever over who captures the returns from innovation, mixing selective startup incentives with scrutiny of investor compensation.
Source on phone just now on the carried interest tax situation: It's like the Red Wedding. Trump collected all the VCs at the White House so he could more easily murder them.
Bullshit. It takes away a loophole. Investors care about net returns and a lot of tax incentives end up subsidizing things that would happen anyway. e.g. MN created tax incentives for VCs to start there. The VCs that used it were med tech, which would have happened anyway
Carried interest is a shameless loophole that has no defensible rationale. It should have been closed eons ago but never died due to the powerful billionaire class lobby “Close carried interest tax deduction loophole”
Would I keep seed venture investing if QSBS for VC ended and I had to pay ordinary income tax rates on all seed investments? Not sure Maybe not [image]
Trump wants to “End levies on tips, Social Security payments and overtime pay” and end the carried interest tax treatment, really bad for VC's, PE managers, etc. New plan: we're moving to a tip-based model
hard to overstate how freaked out PE and VC people are about this. The last time a president came at carried interest, Blackstone's CEO compared the move to the Nazis' invasion of Poland. This is first thing Trump has done that they outright hate.