Carried-interest tax bill in the House once more

Legislation to tax carried-interest compensation at ordinary income tax rates instead of lower capital gains rates was reintroduced today by Rep. Sander Levin, D-Mich. The bill, which is similar to legislation introduced in the last Congress, would tax any compensation for services provided by employees of any type of partnership, capital or otherwise, at ordinary income tax rates. The bill would primarily affect private-equity fund managers, who now are taxed at capital gains rates for profits received on their funds above a threshold amount, usually 20%. Mr. Levin called the legislative proposal “a basic issue of fairness. Fund managers are receiving compensation for managing their investors’ money. They should not pay the 15% capital gains rate on their compensation when millions of other hard-working Americans, many of whose income is performance-based, pay ordinary rates of up to 35%.” A similar proposal is included in President Obama’s fiscal 2010 budget request. “This proposal is not about taxing investment,” Mr. Levin said. “It’s about ensuring that all compensation is treated equally for tax purposes. Anyone who actually invests money in these funds will continue to receive capital gains treatment, including the managers. So there is no reason to expect that the amount of capital available for these kinds of investments will be reduced,” he said.