Everyone says they’re against this tax benefit for wealthy. So why doesn’t it go away? | McClatchy Washington Bureau

Republican Donald Trump blasted rival Hillary Clinton for failing to undo tax provisions that give the owners of giant investment firms a tax rate lower than that of their secretaries.

But his party has been the one blocking changes in the way so-called carried interest is taxed – though Democrats also have been less than aggressive in eliminating a standard that is especially profitable for constituents in Clinton’s home state of New York.

On Sunday night, Trump ripped into Clinton for failing to overturn the carried-interest rules that allow those running private-equity companies, real estate partnerships, venture capital firms and sophisticated hedge funds – who are compensated primarily through a percentage of profits – to have those earnings taxed as capital gains, which carry a lower tax rate than salaries and wages.

“If you were an effective senator, you would have done it,” Trump scolded Clinton, who responded that any effort to repeal the carried-interest provisions faced certain defeat once it reached the White House.

Pressed by Trump as to why she didn’t push to overturn the provision, she answered, “Because I was a senator with a Republican president.” Later, she added, “You know, under our Constitution, presidents have something called veto power.”

But while President George W. Bush did threaten in 2007 to veto a Democrat-sponsored bill to end the practice, such legislation has never made it through both the House of Representatives and the Senate to land on the president’s desk.

That may be because the provision of tax law that permits carried interest is widely used. Trump seemed to confirm that he himself has structured some of his 515 companies listed in his financial disclosure in a fashion that allows him to claim carried interest.

“I absolutely used it,” Trump said. “And so did Warren Buffett and so did George Soros and so did many of the other people that Hillary is getting money from,” he added, naming key Clinton allies.

The Trump campaign did not answer a request for clarification on how he’s benefited from the carried-interest provision. Trump appeared to confirm as well in Sunday’s debate that he had used a $916 million business loss from 1995 to avoid paying federal taxes in subsequent years.

Buffett, whose criticism of carried interest is well known, told CNBC on Monday that while he had used the provision, he had always paid federal income taxes. “I have paid federal income tax every year since 1944, when I was 13,” he said in a statement.

People whose earnings meet the carried-interest requirements are taxed at a rate roughly half that of wage income for top earners. If a wealthy doctor or athlete is taxed at a top rate of almost 44 percent, those who enjoy the carried-interest provision are taxed typically at a rate of 20 percent.

Being against carried interest has little downside. Everyone in Washington claims they are against it, yet it hasn’t proceeded far enough to trigger a presidential veto, as Clinton suggested Sunday in her response to Trump. Benefactors of the provision spend money on both sides of the aisle.

One of the fiercest defenders of the provision is the Real Estate Roundtable, a trade group for real estate investors like Trump. Rallying against a House bill in 2010 that would have replaced carried interest with a higher tax rate, it noted that in 2007 real estate had represented 48 percent of all partnerships.

Doing away with carried interest has been a populist rallying cry for Democrats, but it’s one that Trump has pushed since joining the presidential race last year. It was also a primary-campaign plank for Republican Jeb Bush and Clinton’s now-vanquished rival, independent Sen. Bernie Sanders of Vermont.

Dave Camp, a former Republican congressman from Michigan who served as the chairman of the tax-writing House Ways and Means Committee, said he favored doing away with the carried interest provision. But he opposed doing so without a broad overhaul of corporate taxes, something that hasn’t happened since 1986.

If Congress wanted to get rid of the provision, it could do so easily as part of the annual ritual of extending tax breaks that expire but get renewed before the April 15 tax deadline. These include tax credits for companies to write off their research and development costs and an accelerated rate of depreciation that lets companies aggressively take deductions to free up capital for new purchases and investment.

Wall Street interests have long used their political clout to preserve the status quo.

“Capital gains treatment for carried interest has been enshrined in tax law since the start of the code in 1913 and is based on the uniquely American principle that we reward those who take entrepreneurial risk,” the American Investment Council says on its website in a section opposing changes to carried-interest.

Doing away with the provision, the group warned, could “disincentivize entrepreneurial risk taking that is required to start, save and grow businesses.”

The group, founded in 2007 to fend off changes to its privileged tax status, used to be called the Private Equity Council and later the Private Equity Capital Growth Council. Data from the website Open Secrets, which tracks money in American politics, shows that the group gives to politicians in both parties.

In the current election cycle the American Investment Council Political Action Committee has raised more than $278,0000 and given almost $180,000 through the end of August. It has favored Republicans over Democrats.

In the 2012 election, carried interest was an issue because GOP candidate Mitt Romney had personally benefited from it. That was apparent when he released his tax return less than two months before Election Day, showing his effective tax rate in 2010 and 2011, his actual tax burden – at a rate of about 14.5 percent – much lower than the top tax rates. In that election cycle, the industry PAC spent almost $263,000, giving 67 percent of it to Republicans.

Democrats who received money from the group tended to be in committee and subcommittee leadership positions or from states where private equity and venture capital companies are prominent: New York, New Jersey, Connecticut, Massachusetts and California.

In the current cycle, the group gave $10,000 to New York’s senior senator, Democrat Chuck Schumer, and $1,000 to Clinton running mate Tim Kaine, a Virginia senator.