The origin story of the carried interest tax break (or carried interest tax loop : Planet Money The carried interest tax loophole is a way that wealthy Americans – often the people who manage hedge funds or private equity firms – avoid paying billions of dollars worth of taxes. It has been one of the most controversial yet durable features of the U.S. tax code. But where did it come from? Today we romp through space and time to piece together the origins of this loophole. There will be pirates and mutiny. A 50s tax-dodge-a-palooza. And perhaps the Michelangelo of tax lawyers. | Subscribe to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.

Carried interest wormhole

Carried interest wormhole

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Digital image courtesy of Getty's Open Content Program
Carried interest has its origins in medieval Mediterranean trade, as depicted in this painting by Claude-Joseph Vernet
Digital image courtesy of Getty's Open Content Program

The carried interest tax loophole allows wealthy Americans, like those in private equity and hedge funds, to avoid billions in taxes each year. It's been one of the most controversial features of the U.S. tax system, yet it has survived multiple attempts (by Republicans and Democrats) to try to kill the loophole. The most recent attempt — in the Inflation Reduction Act — was thwarted last week.

On today's episode, we take a trip through history — from spice vessels at medieval Mediterranean ports (like the one in Claude-Joseph Vernet's painting "A Calm at a Mediterranean Port") to rooms on Wall Street — to explore the origins of one of the most unkillable loopholes in the U.S. tax code.

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