Bill would hike private-equity taxes

Congressional leaders are weighing a new proposal that could raise taxes for private-equity firm managers and take a bite out of their pay. The proposal would end a tax break that allows fund managers to pay a capital gains tax of 15% on their performance fees—which makes up the bulk of their income—as opposed to the standard 35% income tax. The proposal goes further than a bill pitched last week by Senators Max Baucus, D-Mont., and Charles Grassley, D.-Iowa, which sought to raise taxes on private equity firms that go public (InvestmentNews, June 15) . The new proposal could raise between $4 billion and $6 billion in tax revenues annually, according to the New York Times. Senators Christopher Dodd, D.-Conn., and Richard Shelby, R.-Ala., a ranking member of the Senate Banking Committee, wrote a letter to SEC chairman Christopher Cox and Treasury secretary Henry Paulson, requesting that they analyze the Baucus-Grassley bill and its effects on capital formation and investor protection. “This legislation has raised many questions from interested parties about its impact on the capital markets if it were to be enacted into law,” the senators wrote. “Pursuant to our oversight of these markets, we are seeking more information about such impact.” Lobbying groups, such as the Free Enterprise Education Institute and the American Conservative Union, are already rallying against any tax increase. “If the goal is to punish an industry that is currently limited to large institutional and wealthy individual investors, or to provide greater financial transparency, this takes the exact opposite approach,” said J. William Lauderback, executive vice president of ACU in a statement.