Trump Just Dropped a Bomb on Hedge Fund Managers—Here's What It Means

Trump’s latest proposal? Close the carried interest loophole, and hedge fund titans are probably not thrilled.

The Setup

Hedge funds operate on a sweet “2 and 20” deal:

• 2% annual fee for managing assets
• 20% cut of all profits

For a $350B mega-fund, this prints serious money. But here’s the kicker—that 20% performance fee gets taxed as capital gains (23.8% tax rate) instead of regular income. Wild difference, right?

The Proposal

Trump wants to reclassify carried interest as ordinary income. Translation: hedge fund managers’ tax rate jumps from 23.8% to 40.8%. That’s a 17-point hit.

Historically, both parties have protected this loophole despite public pushback. The hedge fund lobby’s been throwing serious money to keep it alive.

Why Now?

The core argument: managing money for a fee isn’t “investment returns,” it’s professional service income. Why should fund managers get capital gains treatment when doctors, lawyers, and other pros don’t?

The counterplay? Revenue from closing this gap could fund tax relief for service workers—particularly gig workers and tip-dependent earners. Basically, it’s a wealth redistribution angle.

What Actually Changes?

The “2 and 20” structure stays. What changes is the tax bill on that 20%. Funds might tinker with comp models, but the core business doesn’t break. Hedge fund managers just get materially less take-home.

Bottom line: This isn’t radical reform, but it signals a real shift in how high-earner compensation gets taxed. Whether it actually passes? That’s the question.