Sat, Nov 28, 2015
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

U.S. carried interest tax gathers steam

Tuesday, May 25, 2010
Opalesque Industry Update – The U.S. government’s plan to increase key tax on long term investments gathers steam as fund managers brace themselves for higher tax, expecting to pay more than double than what they usually do, media reports said.

Two lawyers, representing both sides in the debate on the carried interest tax, shared their view on CNBC Monday. Tom Curran, a securities lawyer and a partner at Peckar & Abramson, and a former New York County assistant district attorney, lambasted Congress and accused them of being “a bunch of drunken sailors who will tax anything.”

But Darryll Jones, an associate at the Florida A&M University College of Law and dean for research and faculty, defended the bill and dismissed the reservations of fund managers as “ridiculous.” He told CNBC: “I think it’s essentially restoring some integrity to the tax code. Some people who go to work, perform services, get taxed at up to 35%, and other people who go to work, perform services and get taxed at 15%.”

Under the proposed measure being pursued by the Democrats, carried-interest tax would significantly increase the income-tax rate on private-equity and hedge-fund managers. From the current 15%, fund managers will pay 35% for the first 75% of their income and 15% for the final 25%.

The proposed tax increase on carried interest is scheduled to rise to 20% in 2011. By 2013, three-quarters of carried interest would be subject to ordinary rates, which are scheduled to be more than 40%.

Proponents of the bill hope it would create jobs and help erase the 10% unemployment in the country. Indeed, charging income-tax rates on investment fund managers' carried interest, as opposed to the capital-gains rates they pay currently on those earnings is one of the possible money-raisers that would help provide tax-breaks for small businesses as well as federal unemployment insurance, said Market Watch. That provision would raise about $18.6bn over 10 years, according to CCH.

The bill is opposed by major U.S.-based multinational corporations and most prominently by private-equity firms, said Bloomberg.

House scheduled to debate broader tax measure today
The House is scheduled to debate the broader tax measure today, said Bloomberg, although the bill also faces some opposition in the Senate because it would add to the deficit.

Early last week, Democrats in the U.S. Senate remained divided over the carried-interest tax proposal, in contrast with the House which announced they were ready to introduce a revised bill, including the fund manager tax hike, reported

On Thursday, Senate Finance Chairman Max Baucus and House Ways and Means Chairman Sandy Levins announced they had reached a deal on how to tax carried interest from hedge funds and private equity firms.

The proposal gained momentum after the Senate and the House released a summary of the bill, reported Reuters. However, the bill must still be ratified by at least 60% of the 100-member Senate.

The summary report was meant to be submitted to the Congress last Friday for review. If legislation reaches the full House floor, it presumably reflects provisions Levin believes can pass the Senate, said Reuters. The House has passed measures to increase taxes on fund managers before, but they were never approved by the Senate. However, the need to boost revenue, and public anger aimed at the financial industry may give the measure more momentum this time.
- Dumlao, Gravrand


What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Other Voices: Hedge fund marketing and the selling cycle[more]

    By Bruce Frumerman. How long is the selling cycle now? That’s a question my financial communications and sales marketing consulting firm has been asked on a regular basis by hedge fund firm owners and sales people, ever since we opened the doors to our firm in 1987 pre-crash. Wa

  2. People - Solus Alternative Asset Management adds chief strategist from BTIG[more]

    From Daniel Greenhaus joined hedge fund manager Solus Alternative Asset Management as managing director and chief strategist. He will work closely with Chris Bondy, Solus’ chief economist, managing director and executive vice president, said Chris Pucillo, CEO and chief investmen

  3. Opalesque Roundtable: Seeding deal terms can be onerous for hedge funds[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Executives from fund of funds firms, family offices, a placement agent, a private equity firm, and an accounting firm gathered in Connecticut last month for the

  4. Opalesque Roundtable: Family offices flock to co-investment[more]

    Bailey McCann, Opalesque New York: Co-investments have been a hot topic for pension funds in recent years, as they try to move away from high fees and improve transparency. But now, family offices are more readily getting into the mix and establishing in-house deal teams, according to the delega

  5. More institutional investors invest in CTAs compared to last year despite dissatisfaction with performance[more]

    Benedicte Gravrand, Opalesque Geneva: "Despite a strong start to 2015 for CTAs in Q1, commodity market conditions have made return generation difficult for fund managers over much of the rest of the year to date," says Preqin’s November