JPMorgan Chase CEO Jamie Dimon on Friday advocated for taxing carried interest, aligning with U.S. President Donald Trump’s recent push to close a tax loophole benefiting private market investors. During an interview at the Reagan National Economic Forum, Dimon expressed support for the move, which aims to address the preferential tax treatment enjoyed by private equity and hedge fund managers.
Dimon’s Proposal for Tax Revenue Use
Dimon proposed using the revenue from taxing carried interest to fund initiatives such as doubling income tax credits, even for individuals without children. He emphasized that the $60 billion raised from this tax reform would directly benefit families, communities, and homes. This suggestion aligns with broader efforts to address income inequality by redistributing tax revenue to low- and middle-income families.
Concerns Over Bond Market Stability
In his remarks, Dimon also warned about the possibility of a “crack in the bond market,” citing the U.S. government’s increasing overspending and the continuation of quantitative easing policies. While Dimon acknowledged that such a scenario could lead to market panic, he suggested that JPMorgan, as a market maker, could potentially benefit from the resulting volatility. Market makers like JPMorgan profit from frequent asset exchanges, which generate higher brokerage fees for their trading desks.
Trump’s Trade and Tax Policies Impact
Dimon’s concerns about the bond market follow recent instability triggered by President Trump’s flip-flopping on trade policies and his proposed tax cuts. The rise in treasury yields after the implementation of “Liberation Day” tariffs forced Trump to pause the tariffs for 90 days, further complicating the economic outlook. Despite the uncertainty, Dimon hopes that changes in fiscal policy will help address long-term debt concerns and improve the functioning of financial markets.
The Carried Interest Tax Loophole
Carried interest refers to the portion of a private fund manager’s compensation that is tied to profits generated by the fund. Under the current tax system, carried interest is treated as a long-term capital gain, allowing fund managers to pay taxes at a lower rate than ordinary income. Closing this loophole has been a bipartisan issue for over a decade, with several administrations attempting to close it. According to a 2021 estimate by the Congressional Budget Office, taxing carried interest at ordinary income rates could raise $14 billion over the next 10 years.
Opposition from Private Equity and Hedge Funds
Private equity and hedge fund managers have strongly opposed efforts to close the carried interest loophole, arguing that it could hurt small businesses and institutional investors, such as endowments, foundations, and pension funds. These industry groups, including those representing major financial firms, expressed concerns over the potential negative impact on their operations and returns. However, the debate continues as policymakers weigh the broader economic and social implications of the tax provision.
