The carried-interest loophole lets PE firms pay capital-gains rather than income tax rates.

Evidence

How is this clearly predatory behavior legal, you might ask. It’s called the “carried interest loophole.” Because the acquisitions are structured as investments, PE firms can treat the profits as investment income, which are taxed at the much lower capital gains rate, permitting the whole racket to occur. Closing this loophole is a recurring, popular, bipartisan campaign promise (Barack Obama, Hillary Clinton, Donald Trump, and Joe Biden all promised to end it), but lobbying by the financial sector, as well as the revolving door between government and big business, have ensured the survival of this destructive loophole. — Andrew deWaard, Derivative Media, 138

Categorization

• DEFINE: Clear explanation of the carried-interest loophole as the legal mechanism enabling private equity’s profit model.