House raises taxes on Fund Managers

BetterThanEver · Dec 9, 2009

Investment fund manager's income will now be taxed as ordinary income instead of the 15% capital gains tax.

I always thought it was dumb that wealthy fund managers were taxed at a lower rate than people in other professions. It was tax welfare for the rich.

http://dealbook.blogs.nytimes.com/2009/12/09/house-votes-to-raise-taxes-on-fund-managers/

House Votes to Raise Fund Managers’ Taxes
December 9, 2009, 6:52 pm

The House voted Wednesday to raise taxes on investment fund managers’ income in order to pay for maintaining a variety of tax breaks for businesses.

The bill, approved by a 241-to-181 vote, would treat compensation received by executives at private equity firms, hedge funds and venture capital firms as ordinary income and tax it at a 35 percent rate. Currently, these executives pay a long-term capital gains rate of 15 percent on what is known as “carried interest,” the share of their firms’ profits that they receive.

The bill also calls for imposing stiff penalties on foreign banks that help rich Americans hide assets offshore, Reuters reports.

The legislation would extend for one year a number of tax breaks that were set to expire on Dec. 31. It included help for retailers by trimming the tax depreciation period for remodeled stores and extension of a research tax credit for business.

Many Republicans voted against the Democrat-led bill to protest its inclusion of higher taxes on carried interest at investment firms, arguing that it would discourage investment.

“It is nothing short of a new tax on the various investments needed to start the new business and create economic growth,” said Representative Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee, according to Reuters.

But Representative Sander Levin of Michigan, the Democrat who sponsored the provision, said it would equalize the tax treatment of pay earned by managers of billion-dollar investment funds with that of workers in other service industries.

“When people invest their own money, they should pay capital gains tax on the profits,” Mr. Levin said, according to Reuters. When they perform services like every one else who performs services, should they not pay ordinary income tax?”

President Barack Obama backs the proposal, which would raise $23 billion over a decade.

The private equity industry has vigorously defended the preferential tax treatment for managers’ share of profits.

“Carried interest is appropriately taxed as a long-term capital gain because it represents the profit that an investment partnership earns by buying a capital asset” and “and eventually selling it for more than the purchase price,” Douglas Lowenstein, president of the Private Equity Council, told Bloomberg News.

The increased tax on fund managers’ pay faces opposition from some Democrats in the Senate, which could stall the measure.

The House package would also pay for business tax breaks by requiring reporting by foreign banks and by rich Americans holding assets offshore. That provision would raise about $8 billion over a decade.

The federal government has been cracking down on offshore tax evasion, with notable success in its case against UBS. The Swiss bank agreed to pay $780 million to the United States and turn over thousands of client names.

A key feature of the House bill would add a 30 percent withholding tax on foreign banks that fail to report information on American clients to tax authorities.

“There is a big push right now for transparency to avoid the UBS-type situation,” Joseph Calianno, a partner at the accounting firm Grant Thornton, told Reuters.
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Major · Dec 9, 2009

BetterThanEver said:

Investment fund manager's income will now be taxed as ordinary income instead of the 15% capital gains tax.

I always thought it was dumb that wealthy fund managers were taxed at a lower rate than people in other professions. It was tax welfare for the rich.

http://dealbook.blogs.nytimes.com/2009/12/09/house-votes-to-raise-taxes-on-fund-managers/
Click to expand...

This is great and was one of the dumber things in the tax code. These weren't capital gains - it was money earned for managing other people's money. There's absolutely no reason it should ever have been taxed at anything other than ordinary income rates.

Landlord Landry · Dec 9, 2009

socialistz bastids.

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House raises taxes on Fund Managers

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