The definition is not crystal clear, but if these general partners are just managing funds from investors, and not putting up any funds of their own, then partners have not realized capital gains, but merely managed investments for others.
DEFINITION OF 'CARRIED INTEREST' A share of any profits that the general partners of private equity and hedge funds receive as compensation, despite not contributing any initial funds.
Most hedge fund managers do contribute some initial funds, but the “carried interest” they receive is not based on those funds.
Traditionally, fund managers were paid a 2% management fee. Then, the carried interest, typically at 20% of the profit on the entire fund, would be paid to the managers of the fund if they had delivered at least a pre-set rate of return. Thus, the carried interest was compensation for good performance.
A case could be made, as Trump apparently wants to make, that that capital gain went first to the investors, who in turn paid a performance fee based on the rate of capital gain. Thus, that performance fee should be taxed as ordinary income, rather than a capital gain.
I’m okay with him advocating that, though it is something of a red herring in that it doesn’t represent a major amount of taxes and only affects a relatively few people.