Good morning. Andrew here. The “talks” between the U.S. and Iran appear to have stalled, and yet the stock market is barely reacting, despite oil prices gaining. Investors are also shrugging off news about hantavirus. Should they? And we’re looking at a fascinating new battle over the math for tax revenue from “carried interest.” Let me know where you land on that debate. Finally, I gave a commencement speech at American University’s business school on Friday, in which I argued that the drive of the world’s most successful people often comes from, well, insecurity — the relentless need to prove themselves. How can we all harness that while keeping things in perspective? You can watch it here. (Was this newsletter forwarded to you? Sign up here.)
The new carried interest battleFor years, the debate over carried interest — the billions of dollars in profits paid to many kinds of investment executives that is taxed at capital gains rates — has followed a predictable script. Critics call it an unfair loophole. Private equity and venture capital titans argue that it’s vital to incentivize long-term investment. But now there is a new clash over the math. The Budget Lab at Yale recently dropped a bombshell report: Closing the carried interest loophole could rake in an estimated $87.7 billion over a decade. That’s significantly higher than previous projections from nonpartisan congressional scorekeepers. The Yale team argues that past estimates were too low because they didn’t distinguish between different types of partnership income. Its estimate is based on access to new data. Instead of looking at overall capital gains, the Budget Lab used academic research that analyzed Schedule K-1 tax form data. This allowed the team to see the specific performance-related distributions that go to general partners, or fund managers, versus funds’ limited partners. The team found that far more ordinary income was being cloaked as capital gains, and therefore taxed at lower rates, than previously thought. An industry advocacy group has come out swinging against the Yale report, claiming that its revenue estimate is “a splashy claim. It’s also wrong.”
The last time the carried interest debate flared up in Washington was in 2022, during final negotiations over the Inflation Reduction Act. Democrats scrapped a provision to close the loophole at the eleventh hour to secure the support of Senator Kyrsten Sinema of Arizona, then a Democrat. (The industry had heavily lobbied her.) That reinforced the perception of the private equity industry’s clout in Washington. But the issue is coming up again: Last month, senators including Ron Wyden, Democrat of Oregon, introduced a bill to raise taxes on carried interest.
Some passengers evacuated from a cruise ship linked to hantavirus are heading home. As people began disembarking yesterday from the vessel, the MV Hondius, after it anchored off Spain’s Canary Islands, some tested positive for hantavirus, according to authorities, and others were symptomatic. Health officials have stressed that the risks to the general public remain low. China exports more electric vehicles than gasoline-powered ones for the first time. E.V.s and plug-in hybrids accounted for just over half of the 769,000 vehicles that the country shipped abroad in April, the China Passenger Car Association said today; exports of so-called new-energy vehicles more than doubled. It’s another sign of China’s strength in E.V.s, especially as the war with Iran drives up global oil prices. A founder of Fortress Investment Group is identified as the victim of a blackmail plot. A spokesman for Wes Edens, who also co-owns the N.B.A.’s Milwaukee Bucks, confirmed to The Wall Street Journal that he was “Victim-1” in documents accusing Changli Luo of trying to extort a man after they had sex. Prosecutors said she had sought more than $1 billion in payouts; Luo has pleaded not guilty. “Totally unacceptable”Oil is gaining again as investors brace for a continued stalemate in U.S.-Iranian negotiations to end the war. The countries traded jabs on social media yesterday amid new warnings from Wall Street and the Persian Gulf over the war’s fallout on the global energy market. President Trump said on social media that Iran’s latest offer to end the war was “TOTALLY UNACCEPTABLE.” And Masoud Pezeshkian, Iran’s president, posted on X that, that the country intends to take a hard line in negotiations. The latest:
What Trump rejected: Among the conditions he found unacceptable were Iran’s demands for U.S. war reparations and recognition of its sovereignty over the Strait of Hormuz, according to Iran’s state-owned broadcaster. Reopening the strait is a timely concern. Amin Nasser, the C.E.O. of Saudi Aramco, the oil giant, warned that disruption of shipping through the strait, a vital oil passage, stretching more than a few more weeks would result in high oil prices until 2027. Analysts at Morgan Stanley also cautioned that the oil market was in a “race against time” and that oil prices could jump to as high as $150 a barrel if the strait did not open until late June or July.
The Trump administration sees potentially higher prices, too. Chris Wright, the energy secretary, told “Meet the Press” yesterday that gas prices would most likely remain high as long as the war continued; in March, he had said that there was a “good chance” they would drop below $3 a gallon before the summer travel season. Wright also said the administration was open to pausing the federal gas tax to give relief to drivers. That said, the tax accounts for just a little over 18 cents per gallon of gasoline. “Kevin Warsh is the dog who caught the car. I say that with great affection and sympathy.”— John Cochrane, a senior fellow at the Hoover Institution, on Warsh, President Trump’s pick to lead the Fed and a soon-to-be former colleague. The Senate may vote to confirm Warsh as soon as Wednesday, but the next Fed chair will face many challenges, including war-driven inflation, Trump’s desire for lower rates and a predecessor who isn’t going away yet.
What to watch for at the Trump-Xi summitPresident Trump’s meeting with Xi Jinping, China’s top leader, is officially set for later this week, with the fighting in Iran, a trade war and the artificial intelligence race as the backdrop. Trump appears to be courting investments and seeking deals, while China hawks are pushing a harder line on Beijing, George Chen, a partner at the Asia Group, a strategic advisory firm, told DealBook. Still, many analysts say Xi has the upper hand, Grady McGregor reports. (That said, Xi is facing domestic pressure about the economy.) Here are three issues that could define the visit. Trade:
Geopolitics:
A.I.:
The meeting could have a wider fallout on international relations as business leaders and experts warn that the two countries are increasingly demanding that trade partners choose their way over the other’s. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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