The private equity industry is pushing back hard against a new Yale study estimating that closing the carried interest tax loophole could generate $87.7 billion in revenue over a decade. The Budget Lab at Yale used detailed Schedule K-1 tax form data to analyze performance-related distributions to fund managers, finding significantly more income being taxed at lower capital gains rates than previous estimates captured.

Past projections from congressional scorekeepers were lower because they didn't distinguish between different types of partnership income. The Yale team argues this data gap led to undercounting how much ordinary income gets "cloaked" as capital gains. Private Investment Works, an industry advocacy group, called the estimate "a splashy claim" that's "wrong," arguing managers would simply start fewer funds or relocate overseas.

The debate is heating up in Washington. Senators including Ron Wyden recently introduced legislation to raise taxes on carried interest, reviving an issue that failed in 2022 when Democrats scrapped a similar provision to secure Senator Kyrsten Sinema's vote during Inflation Reduction Act negotiations. The outcome could determine whether the industry retains a tax advantage worth billions.