Democrats want to close a "stain" of a tax break. Some say it's not enough.

The "carried-interest" tax loophole is a provision that seems to be loved only by those who enjoy its benefits: Private-equity executives, hedge fund managers and others who manage money for a living. But Democrats are seeking to partially close that loophole as part of the Inflation Reduction Act, and in the process raise billions in new tax revenue. 

The carried-interest tax provision allows wealthy fund managers to pay a much lower tax rate on much of their earnings than most Americans typically pay on their income. The loophole works by taxing carried interest — a payment that fund mangers receive as their cut of the profits from investing people's money — as a long-term capital gain, which imposes a 20% tax rate on the highest earners. 

That's a huge benefit because earned income for America's top earners is taxed at a 37% rate. For instance, take a private-equity manager who books a $10 million windfall from carried interest. Instead of paying $3.7 million to the IRS, she'll pay $2 million — pocketing an extra $1.7 million that otherwise would have been taxed.