If I understand this correctly, the loophole that's being closed here is a special tax rate for "investment income" from money that did not expose the VC's themselves to risk, but only the VC's limited partners (who provide most of the capital for venture funds).

In other words, the pension funds, endowments, and corporations that actually provide capital aren't being taxed more aggressively. The people who allocate that capital are.

This makes sense, doesn't it? If you invest $10,000 of your own money in a company for several years, you should rightly expect to pay the long-term capital gains rate on the returns. The tax code wants to encourage you to invest in things and drive the economy, and you did that.

But if I give you $10,000,000 to invest for me, and you turn it into $50,000,000, you shouldn't be getting a free ride on the millions of dollars you just made. The money was getting invested one way or the other. All you did was make it your job to invest it (allegedly!) efficiently.