Trump’s tax bill jeopardizes carried interest

Topline

• Policymakers pivot on tax, potentially into carried interest

• Crypto faces headwinds over Trump’s industry ties

• Innovation Coalition letter to Chairman Atkins

• One deal down, many more to go

• Carta Virtual Event: Tariff Turmoil: Implications for Private Capital

Policymakers pivot on tax, potentially into carried interest

What’s $500B between friends?

The House tax-writing committee has signaled it is ~$500 billion short in funding necessary to make the expiring provisions of the Tax Cuts and Jobs Act permanent and advance President Trump’s additional priorities. His response: End favored carried interest tax treatment and increase the tax rate on the wealthiest Americans. 

How we got here: Republicans are pursuing a reconciliation strategy that enables them to pass a tax bill with simple (Republican-only) majorities. The catch: To placate budget hawks and pass the reconciliation instructions, Speaker Johnson committed to finding $2 trillion in spending cuts for $4.5 trillion in tax cuts. Every dollar short of that number decreases the scope of the tax cuts. The problem: To  reach that level of savings, Congress has to hit safety-net programs like Medicaid, and that is an issue for the party’s moderate wing in competitive districts. So we are at an impasse, and the push now is to pass a less big, less beautiful bill—$4 trillion in tax cuts for $1.5 trillion in spending cuts. 

Next steps: The House tax-writing committee is expected to release aspects of the bill in the coming days and consider and vote on text next week, though everything is fluid and subject to shift. The President is meeting with the tax committee leader today (Friday), and based on his preference for making the provisions permanent and adding more relief, will likely push the leaders to find the cuts. And if it doesn’t come from programs like Medicaid, it may be coming from, you guessed it, provisions that matter to the innovation economy. 

Innovator Alliance: Carta and its partners in the Innovator Alliance continue to engage policymakers to fight for our priorities. Below is a snapshot and state of play.

• Carried interest: Eliminating the favorable tax treatment for carried interest by shifting the long-term capital gains rate to ordinary income would strike at the fundamentals of fund economics. It would only raise $15 billion, a small number, relatively speaking, but every offset dollar matters at this point.  And the fact the president continues to target the provision puts it in real jeopardy. Congressional Republicans don’t want to cut the tax treatment, they need to raise revenue and the president continues to target it, so the provision is in real jeopardy. Our aim is to preserve the current treatment, but industry may need to be ready with a compromise solution.

  • Bottom line: Is that liquidity window open yet…

• R&D: Our goal is to reinstate immediate expensing of R&D investments. This is expected to be included in the bill, though it is likely a temporary four-year fix rather than permanent given the cost pressure. Further, it is likely to only be retroactive to January 2025, not 2022; and although the U.S.-related R&D costs will be fully expensed in the year they are incurred, the international side will still require some amortization. The biggest threat to this provision is that the entire bill falls apart and Congress does a narrow “extenders package” at the end of the year.

  • Bottom line: Not everything we want, but positive progress. 

• Qualified Small Business Stock: Our primary goal is to preserve QSBS treatment. It has come under fire, so rather than play defense, we are playing offense, supporting legislation in both the House and Senate to expand the provision to more corporate entities and financing arrangements. This expansion language is unlikely to be included, but if we are talking about expansion, we are in a better posture to play defense. The reality is if they need cuts, QSBS is in scope, so we are keeping the pressure up to preserve it.

  • Bottom line: Decent shape, but don’t consider it safe until the bill is done (and remember, Carta attests your QSBS shares).

We will know more this coming week, but no matter what, the debate will take time, so engagement will matter. Contact us to learn more or get involved with us or our coalitions.

Crypto faces headwinds over Trump’s industry ties

Congressional efforts to create a regulatory framework for stablecoins hit a snag this week, dimming hopes for legislation to reach the president’s desk in the near term. The Senate stablecoin bill—the GENIUS Act—appeared on track to pass the upper chamber with strong bipartisan backing, but hit a surprise roadblock over the weekend when nine likely Democratic supporters pulled their support for the most recent version. Despite ongoing negotiations and calls for delay, Senate leadership proceeded with a vote to open debate on the measure, which failed to reach the 60-vote threshold by a vote of 48-49 (Republican Sens. Rand Paul and Josh Hawley joined Democrats in opposition).

Why it matters: Crypto momentum seemed strong heading into this Congress, but concerns over Trump family crypto dealings have thrown a wrench in the process. While many Democrats support the industry’s calls for clear rules—even more so given Trump’s ties to the industry—the pressure to address these perceived conflicts in legislation will only intensify. The longer this goes, the harder it gets. And a more drawn-out process limits bandwidth for other priorities, like capital formation.

Outlook: We are still bullish that stablecoins—the lower-hanging fruit—gets done. The more complex, multijurisdictional market structure framework is harder. While Congress continues to work through legislation, regulators like the SEC are making headway and have indicated a willingness to move forward even in the absence of legislation. 

Dear Chairman Atkins…

While the SEC has its hands full with digital assets, we want to ensure capital formation also remains top of mind. To that end, Carta led a group of innovation-focused organizations in a letter to Chairman Atkins encouraging him to prioritize policies to bolster capital formation and expand private market investment options for more Americans, including:

• Expanding VC qualifying investments and fund parameters to bolster emerging managers and increase access to capital

• Modernizing the accredited investor standard to include sophistication on-ramps beyond financial metrics 

• Expanding retail access to private market investments through professionally managed funds and investment professionals

• Reducing frictions in capital-raising process and improving the private fund adviser regulatory framework

. Check out the letter here.

One deal down, 199 to go

This week, President Trump announced a trade agreement with the UK. Details are still being ironed out, but here are some broad contours of the agreement:

• Lower UK tariffs on U.S. beef, ethanol, and other products, opening UK markets to $5 billion in new U.S. agriculture exports

• 10% U.S. tariff will still apply to most UK imports, but the deal exempts steel and aluminum and lowers the auto levy from 27.5% to 10%.

• The deal does not address the UK’s 2% digital services tax or the treatment of pharmaceuticals, though negotiations are reportedly ongoing. 

How we got here: The broad-based tariff policy set in motion under Trump breaks into two buckets: China and everyone else. For the latter, the administration has adopted a more measured approach, pausing implementation on the higher reciprocal tariff rates but leaving them in place to put pressure on dealmaking. China is another story; instead of taking a pause, the U.S. escalated to the highest level, with China responding in kind. The U.S. and China have reached stasis, at least publicly, and Treasury Secretary Bessent and his Chinese counterpart are preparing to meet this weekend in Switzerland. 

Why it matters: The U.S.-UK deal helps fuel investor optimism and consumer confidence in future deals and off-ramps, providing the administration with more runway to execute. But this deal was lower hanging fruit; others—like China—will not be as easy. To set expectations, the administration has acknowledged near-term economic pain, but is messaging that this pressure—combined with tax cuts and deregulation—will lead to better trade deals and drive long-term economic expansion. As we learned shortly after Liberation Day, Americans — and their representatives — only have so much patience for turmoil and economic pain. And the anticipated price hikes and supply chain disruptions are only just beginning. 

What’s next: The 90-day clock on the remaining deals ends in July, which will create reset questions soon. And even as discussions may lead to progress, this new trade dynamic will be protracted due to the dozens of nations we are trying to reach terms with and because any U.S.-China deal is likely to be a complex negotiation. So settle in, we’re just getting started.

But with an American Pope hopefully we can wrap a deal with Vatican City pretty quickly…

Carta webinar on tariffs and private capital

To learn more about the impacts of tariffs on private capital, join us on Wednesday, June 4 | 10:00am PT / 1:00pm ET

Quick hits

• CFPB rolls back dozens of policy statements, interpretive rules, advisory opinions issued since the agency’s inception. The agency is also expected to push the court to vacate a Biden-era open banking rule. The CFPB plans to ask a court to vacate the prior administration’s Section 1033 open banking rule, which gave consumers greater control over their financial data. 

• Trump’s pick to lead CFPB nominated for Treasury post. President Trump nominated Jonathan McKernan to serve as undersecretary of domestic finance at the Treasury Department. House Republicans release digital asset market structure discussion draft; Democrats boycott hearing over Trump crypto ties. 

• U.S. to overhaul curbs on AI chip exports after industry backlash. The rule, which would limit how many AI chips certain countries could buy, was set to take effect on May 15. The focus is expected to turn to how to block China from accessing chips. 

Sign up below to receive Carta’s Policy Weekly Brief