The change may “substantially” alter tax rules for top US financiers, potentially sparking a clash with the influential finance industry. Credit: GamePixel/Shutterstock.

US President Donald Trump has announced his intention to end the preferential tax treatment of private equity and hedge fund profits, commonly referred to as “carried interest.”

This move could lead to a “significant shift” in the taxation of America’s wealthiest financiers and may mark a “potential” confrontation with a powerful financial sector, reported Financial Times.

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Trump is pushing for a tax cut bill to be passed this year, which is a key part of his economic agenda. This was communicated by the president during a meeting with Republican leaders from Capitol Hill.

During a press briefing, White House press secretary Karoline Leavitt informed reporters that President Trump had discussed his tax priorities with lawmakers. These priorities include closing the carried-interest tax deduction loophole, removing tax breaks for billionaire sports-team owners, and fulfilling campaign promises such as eliminating income tax on tips.

The “carried interest” tax treatment has been a contentious issue in Washington for the past two decades, with private equity groups and hedge funds facing political scrutiny due to their substantial influence on Wall Street.

The term “loophole” is used because these profits are taxed at lower long-term capital gains rates rather than ordinary income rates, with the top capital gains tax rate at 20% compared to the top federal income tax rate of 37%.

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Trump’s previous attempt to eliminate this special tax treatment in 2017 was unsuccessful, but he is now revisiting the issue.

Private investment industry groups are, however, opposing Trump’s proposal to raise “carried interest tax”, reported Reuters.

In a statement, National Venture Capital Association (NVCA) president and CEO Bobby Franklin said: “Carried interest encourages smart, high-risk investments in innovative high-growth startups.

“The 2017 Trump tax legislation kept venture investment flowing to emerging technologies like AI, crypto, life sciences, and national defence.”