Private Equity's Quiet Power: Schwarzman, KKR, and Carried Interest

The Carried Interest Loophole

At the heart of private equity's political operation is a single tax provision: the carried interest loophole. Understanding it is understanding why billionaire fund managers spend hundreds of millions on politics.

Here's how it works:

1. Private equity fund managers invest other people's money — pension funds, endowments, wealthy individuals
2. When the fund profits, the manager takes a cut — typically 20% of the gains (the "carry")
3. This cut is compensation for work — it's the manager's fee for managing the fund
4. Under normal tax rules, this income should be taxed as ordinary income at 37%
5. But the carried interest loophole classifies it as a capital gain, taxed at just 20%

The difference — 17 percentage points — on billions of dollars in income represents an enormous tax savings for PE fund managers and an enormous revenue loss for the federal government.

The $42 Billion Man

Stephen Schwarzman, the co-founder and CEO of Blackstone — the world's largest private equity firm with $1 trillion in assets under management — is the embodiment of PE's political power.

Schwarzman's political activities include:

• $35 million+ in political donations in the 2024 cycle (primarily to Republican candidates and super PACs)
• Personal relationship with Trump spanning decades — Schwarzman hosted Trump at his Palm Beach estate
• Chaired Trump's Strategic and Policy Forum during the first term
• Major donor to Trump's 2025 inaugural fund
• Active lobbying on tax policy through Blackstone's government affairs team

Schwarzman's net worth of $42 billion makes him the wealthiest person in private equity. A significant portion of that wealth was accumulated through carried interest — income taxed at 20% rather than 37%. The cumulative tax savings over his career are estimated at $3-5 billion.

The Lobbying Machine

Private equity's lobbying operation is one of the most sophisticated in Washington. The industry's trade group, the American Investment Council (AIC), coordinates lobbying across the sector:

• AIC annual lobbying budget: $7.8 million
• Total PE sector lobbying (2024): $190 million+
• Registered PE lobbyists: 340+
• Campaign contributions (2024 cycle): $210 million+
• Revolving door hires: 67 former congressional staffers and executive branch officials

The AIC's lobbying targets go well beyond carried interest. PE firms lobby on:

• Bankruptcy laws (affecting portfolio company restructurings)
• Healthcare regulation (PE owns thousands of hospitals, nursing homes, and medical practices)
• Environmental rules (PE owns significant energy infrastructure)
• Labor regulations (PE-owned companies employ millions of workers)
• Financial regulation (SEC oversight of fund disclosures and fees)

The Kill Count: How Carried Interest Survived

The carried interest loophole has survived every attempt to close it over the past 17 years:

• 2007: House passed a bill to tax carried interest as ordinary income — died in the Senate
• 2010: Included in early drafts of the Dodd-Frank Act — stripped out after intense lobbying
• 2012: Obama proposed closing the loophole — blocked by bipartisan opposition in Congress
• 2017: Trump promised to close it during his campaign ("The hedge fund guys are getting away with murder") — the Tax Cuts and Jobs Act made only minor changes, adding a 3-year holding period
• 2021: House Ways and Means Committee passed closure — removed from the Inflation Reduction Act after Joe Manchin objected
• 2022: Kyrsten Sinema single-handedly killed carried interest reform in exchange for PE industry campaign support
• 2025: Not included in Trump's tax reform package despite earlier rhetoric

The pattern is clear: the loophole is popular to campaign against but impossible to close, because the PE industry's lobbying infrastructure activates the moment any legislation gets serious.

PE's Reach: Beyond Wall Street

Private equity's political influence matters because the industry's reach extends into nearly every sector of the American economy:

When PE lobbies for lighter regulation, the consequences ripple through these sectors. When PE-owned hospitals cut staff to improve margins, patients suffer. When PE-owned housing companies raise rents, communities are displaced. The political power of the industry determines the rules governing all of this.

The Sinema Precedent

The most instructive episode in carried interest's survival was the Kyrsten Sinema maneuver in 2022. When the Inflation Reduction Act included a provision to reform carried interest taxation, Senator Sinema — who had received $1.5 million in PE industry contributions — demanded its removal as a condition for her vote.

The provision was removed. Sinema retired from the Senate in 2024, and immediately took a position as a senior advisor at a private equity firm.

"The carried interest loophole isn't a bug in the tax code. It's the most expensive feature ever purchased. The PE industry has spent approximately $2 billion in lobbying and campaign contributions over the past two decades to protect a provision worth $18 billion per decade in tax savings. That's a 9:1 return on investment."

— Morris Pearl, Chair, Patriotic Millionaires

Sources

• OpenSecrets: Private equity/investment industry lobbying and contribution data
• Congressional Budget Office: Revenue estimates for carried interest reform
• American Investment Council: Annual reports and lobbying disclosures
• SEC filings: Blackstone, KKR, Apollo, Carlyle annual reports
• Forbes: Billionaire tracker and PE executive wealth estimates
• Tax Policy Center: "Taxing Carried Interest as Ordinary Income" analysis
• Patriotic Millionaires: Carried interest reform advocacy research
• ProPublica: IRS data analysis on PE executive tax rates