Democrats Introduce Legislation to End Carried Interest
Friday, June 22, 2007 : PermalinkHedgeCo.net - U.S. Representative Sander Levin (D-MI), was joined by Chairmen
Charles Rangel and Barney Frank as well as Ways and Means Committee Members
Reps. Pete Stark, Jim McDermott, John Lewis, Richard Neal, Earl Pomeroy, Stephanie
Tubbs Jones, John Larson, Rahm Emanuel, Earl Blumenauer, Ron Kind, and Bill
Pascrell in introducing legislation today that would ensure that investment fund
managers who take a share of the funds' profits as compensation for investment
management services, known as "carried interest" would be taxed at an appropriate
ordinary income tax rate.
Currently, the managers of private investment partnerships are able to receive
compensation for these services at the much lower 15% capital gains tax rate rather
that the ordinary income tax rate by virtue of their fund's partnership structure.
"Congress must ensure that our tax code is fair. We have to be sure that the lower
capital gains tax rate is not being inappropriately substituted for the tax rate on wages
and earnings," said Rep. Levin.
"Investment fund employees should not pay a lower rate of tax on their compensation
for services than other Americans," continued Rep. Levin. "These investment
managers are being paid to provide a service to their limited partners and fairness
requires they be taxed at the rates applicable to service income just as any other
American worker."
The legislation clarifies that any income received from a partnership, capital or
otherwise, in compensation for services is ordinary income for tax purposes. As a
result, the managers of investment partnerships who receive a carried interest as
compensation will pay regular income tax rates rather than capital gains rates on that
compensation. The capital gains rate will continue to apply to the extent that the
managers' income represents a reasonable return on capital they have actually
invested in the partnership.
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