Why are private equity titans giving all their campaign money to Hillary Clinton?

For years, Democratic elected officials in Washington have been wary of going after Wall Street excesses too hard, lest the deep-pocketed financial industry throw all its resources to Republicans.

This has been especially true of one of the most notorious targets for financial reform: the favorable tax treatment of the outsized compensation earned by partners in private equity firms. Democrats have long spoken out against this so-called “carried-interest loophole,” yet have often not pushed as hard as they could to change the law, which saves some of the very wealthiest people in finance billions of dollars in taxes each year.

All of this explains why the scenario presented by the 2016 election is so surreal. The Democratic presidential nominee, Hillary Clinton, has vowed to close the loophole, saying it’s unfair that the highly compensated money managers who benefit from it “pay lower tax rates than nurses or … truckers.” Clinton recently went even further than President Obama on the issue, saying she would close the loophole through executive action if Congress continued to resist a legislative fix, a step that Obama has shied away from taking.

One might reasonably expect Clinton’s campaign contributions from private equity to suffer as a result of this stance, and for the money to flow overwhelmingly to the Republicans, as it did in the last presidential election.

That hasn’t happened. In fact, Clinton is receiving all of the industry’s support.

As of the end of July, the executives and employees of the four biggest private equity firms (the Blackstone Group, Carlyle Group, KKR and Apollo Global Management) had given her campaign a combined $182,295 in direct contributions, according to the database compiled by the Center for Responsive Politics.

Their combined contributions to her opponent’s campaign? Zero. Not a cent.

The reason for this swing, of course, is that Clinton’s opponent is not just any Republican, but Donald J. Trump. Trump broke with the Republican mold on the carried-interest issue early in his campaign when he announced that he, too, was in favor of closing the loophole (thought as tax experts have noted, other aspects of his tax plan would likely save those who benefit from the loophole even more on their taxes than keeping the loophole does). Trump’s selection of Mike Pence as his running mate – Indiana’s sitting governor – has further dissuaded Wall Street firms from giving to the campaign out of fear of violating “pay to play” rules that bar firms from giving to state officials with oversight over the pension funds that invest with the firms.

But the private equity industry’s abandonment of Trump, which predates his selection of Pence, arises mostly from anxiety in the higher echelons of Wall Street over what a Trump victory would mean for the country and financial markets.

“The day after the election of Donald Trump the market will go down massively as people jump out of stock and bonds and buy gold,” said Robert Shrum, a longtime Democratic political consultant now on the faculty of the University of Southern California. “Saving on your taxes on your profits doesn’t do you any good if you don’t have any profits.”

The top four private equity firms, which declined to comment for this article, aren’t donating to Clinton at the level they backed 2012 Republican nominee Mitt Romney, who had spent years working in the industry. Executives and employees of those firms gave Romney a combined $591,600, while giving only $147,031 to Obama, who had attacked the loophole as a senator and a presidential candidate. But Clinton’s take has already surpassed Obama’s.

The private-equity industry’s giving this year is mirrored by a mismatch in other sectors of Wall Street (though a few hedge fund managers have taken prominent roles as Trump fundraisers and advisers) and helps explain Clinton’s financial advantage heading into the campaign’s home stretch. But it also raises an obvious question for Clinton: Would she as president really follow through with a campaign proposal that will raise billions of dollars in revenue from the very industry that has favored her so completely over her opponent?

Two economic advisers to Clinton, speaking on condition that they not be identified per campaign policy, insisted that her proposals on the issue should be taken at face value. The Trump campaign did not respond to requests for comment.

Barney Frank, the former Democratic congressman from Massachusetts who co-authored the Dodd-Frank financial reform law of 2010 and was sharply critical of the loophole while in office, said in an interview that Clinton should be taken at her word on the issue, regardless of the industry’s campaign contributions. “She genuinely believes [in closing the loophole] and they have given her all that money assuming that’s what she believes,” he said.

The fact remains, though, that the carried-interest loophole has survived for years despite many previous avowals of intent to close it. The loophole is often referred to as the “hedge-fund loophole,” but it applies far more to private-equity, as well as venture capital and real estate investment firms. Private-equity firms use the money of wealthy individuals and pension funds to buy private companies or take publicly held companies private, then try to increase the companies’ bottom line before reselling them for a profit.

Typically, private-equity partners are paid a 2 percent fee on the assets under their management, plus a 20 percent cut of any profits, which is known as carried interest. The fees are taxed as ordinary income, but the carried interest is taxed at the lower capital gains tax rate, even though it is compensation for labor – the partners’ handling of others’ money – rather than a return on the partners’ own investment. Currently, that means being taxed at 23.8 percent rather than the 39.6 percent top rate for ordinary income; for much of the past 15 years, it was an even bigger difference, 35 percent vs. 15 percent.

This tax treatment has roots in the oil and gas industry of the early 20th century, when partners doing the actual work of oil exploration using other partners’ investments had their share of profits taxed at the capital gains rate, which has for much of the past century been lower than the rate for ordinary income in order to incentivise risk-taking and entrepreneurship. The logic was that these partners’ “sweat equity” had also entailed risk, since they only got a payout if their exploration panned out. But the treatment has become harder to justify in the context of today’s private-equity industry, since there is much less risk-taking at work: Partners collect their 2 percent fee no matter what, and are generally investing in existing companies, not starting new ones, making their work harder to distinguish from other finance professionals who pay taxes at ordinary income rates on their compensation.

Estimates of the loophole’s total tax benefit for private-equity partners (roughly 20 of whom are now worth more than $2 billion each, according to the Forbes 400 list) range from about $2 billion per year to seven or eight times as much as that. For nearly a decade, assorted congressional Democrats have sought to close the loophole, with occasional support from the odd Republican, but these efforts have repeatedly come to naught, with the last major push coming up a few votes short of a filibuster-proof majority in the Senate in June 2010.

There has been no concerted effort since late 2010, when Republicans became the majority in the House. Speaker Paul Ryan opposes closing the loophole outright, instead saying the matter will be taken up as part of comprehensive tax reform in years ahead. But comprehensive tax reform has not been undertaken in Washington since 1986. In 2014, when then-Ways and Means Committee Chairman Dave Camp, a Michigan Republican, offered a comprehensive reform plan that included closing the carried-interest loophole, it went nowhere with his Republican colleagues.

Many Democrats have also moved with something less than alacrity when it comes to closing the loophole. In 2007, then-Senator Clinton declined to join Senator Obama in co-sponsoring legislation to close it, though she did come out in favor of doing so on the presidential campaign trail that year. Her fellow New York senator, Charles Schumer, who is in line to be leader of the Senate Democrats, repeatedly insisted that any reform of carried interest also apply to real estate and venture capital, not just private equity, which served to increase opposition to the measure. And Obama has resisted the arguments of tax experts such as Victor Fleischer, a leading critic of the loophole, that it could be closed by administrative fiat. (Fleischer is leaving academia to become Democratic tax counsel on the Senate Finance Committee.)

Democratic foot-dragging on the issue can be attributed partly to the fact that the cities where private equity and venture capital are clustered – New York, Boston and San Francisco – are Democratic power centers. Private equity firms and the industry’s trade group (recently renamed the American Investment Council, dropping the term “private equity”) have hired many former Democratic lawmakers and staffers to lobby on the issue. And several top private equity partners have built strong ties of their own with Democrats.

One is David Rubenstein, the co-founder of Carlyle. Rubenstein, who worked in the Carter White House, has long sworn off making campaign contributions, helping him maintain good relations with elected officials of both political parties. As a ProPublica article co-published with the New Yorker in March described, Rubenstein capitalized on his credibility with congressional Democrats, which he has buttressed with his considerable philanthropic giving to civic causes in Washington, to make the case on the Hill against closing the loophole when efforts to do so came close in 2007 and 2010.

In interviews since the article appeared, Rubenstein has downplayed his influence on the issue. “I haven’t talked to a member of Congress about this in five years—it’s just not one of my main concerns,” he told the New York Times’ Andrew Ross Sorkin. He told the public-radio show “Marketplace,” “I haven’t been active in it. I don’t think I’ve talked to a member of Congress about it in five years or so. It’s not my major focus. Of the 1,000 things I’ve worried about, it’s not even in the top 1,000.” Left unsaid in both interviews was that Rubenstein hasn’t had to lobby Congress on the loophole in the past five years because it hasn’t been under serious threat in that time span.

Rubenstein even got ribbing for his effective defense of the loophole from Larry Summers, a former Treasury secretary in the Clinton administration and Harvard University president, at a conference in Las Vegas in May. “Rarely has a policy existed so long with such weak arguments in its favor,” Summers said in a session with Rubenstein and Robert Rubin, the former Goldman Sachs and Citigroup executive who preceded Summers as Treasury secretary in the Clinton administration. “It’s the First Amendment, the Second Amendment, and carried interest, right?”

“Not necessarily in that order,” joked Rubin.

According to Business Insider, Rubenstein countered that if Summers and Rubin found the tax treatment of carried interest so unfounded, they could have used executive action to eliminate it when they ran the Treasury Department. This was a notable remark, in that it seemed to undercut the industry’s position that the tax treatment can only be changed legislatively.

In this election, Rubenstein has maintained his policy of not making campaign contributions. But his Carlyle colleagues have made a striking shift, giving Clinton more than double what they gave Obama in 2012, with several months left to go in the campaign. Most eye-catching, though, is the shift at Blackstone, whose executives and employees gave Romney nearly $250,000 in 2012. Among those giving to Romney was Blackstone co-founder Stephen Schwarzman, who in 2010 had compared closing the carried-interest loophole to the Nazi invasion of Poland (he later apologized).

This year, Schwarzman has given to neither presidential candidate, while giving more than $200,000 to a long list of Republican Senate and House candidates and party committees (plus to Schumer, the only Senate Democrat to get a check from Schwarzman). Instead, the most prominent Blackstone executive on the presidential campaign scene has been its president and chief operating officer, Hamilton “Tony” James, who hosted a fundraiser for Hillary Clinton late last year, with Warren Buffett, and hosted a reception at the Democratic convention in Philadelphia. James is mentioned as a possible candidate for Treasury secretary in a Clinton administration.

The Philadelphia reception, at the Barnes Foundation, was attended by a who’s who of Wall Street executives and Democratic luminaries with Clinton roots, including Summers, Chicago Mayor Rahm Emanuel and former economic adviser Gene Sperling. In a brief speech, James avoided any mention of the carried-interest issue. Instead, he cast Clinton as a savior against darkness.

“Every election, people say this one really matters. But I think this one really matters. We can raise our sights, we can elevate the country… or we can take the path down, the path down to fanning fears… social divisions,” James said. “There are two reasons we have to win this election. First of all we have a great leader and candidate. Secondly, we have a nightmare alternative.”

This article first appeared on ProPublica.