Bush-Rangel compromise possible on hedge fund/AMT bill

Posted Oct 26th 2007 8:55AM by Joseph Lazzaro
Filed under: Other Issues, Politics, Small Business

Beltway Banter: The quick, initial read regarding U.S. Representative Charles Rangel's (D-New York) hedge fund/buy-out firm tax bill introduced Thursday is that the measure, as composed, would produce a certain veto from President Bush, but that the Bush Administration may be willing to work on a revised Rangel measure.

A revised bill, provided it successfully snakes its way through the U.S. Senate, may be legislation President Bush can work with, as a way to solve the alternate minimum tax issue. Designed to prevent wealthy Americans from paying no tax via tax shelters, the AMT -- due to inflation -- applies to a larger number of upper-middle-income Americans each year. Without an AMT patch, 21 million households will be obligated to pay the alternate minimum tax.

U.S. Rep. Rangel's measure would more than double the tax rate on carried interest, the executive compensation at buy-out and venture-capital firms, and would require hedge-fund managers to pay tax on income they defer in offshore accounts, among other bill features.

U.S. Rep. Rangel calls his bill "the mother of all tax reforms." Republican leaders disagree. In a statement, they called the bill, "the mother of all tax hikes" and assert that the bill would raise taxes by $1 trillion over a 10-year span, Reuters reported. Rep. Rangel countered by saying that U.S. Treasury Secretary Henry Paulson had recommended the business tax changes.

However, U.S. Treasury Secretary Paulson issued a statement saying the bill "would dramatically raise taxes in ways that in my judgment would hinder America's ability to compete in the global economy.''

Beltway Analysis: Given the AMT timetable, and the pinch some Republican voters (as well as Democratic voters) will feel from the tax, the Bush Administration may actually support a tax reform bill, one that also modestly increases hedge fund/private equity tax rates, in exchange for a large reduction in the corporate tax rate, for example from the current 35% to 28% or 25%. Further, as is so often the case in Washington, there may be other tax code items -- or other policies/programs -- the Bush administration and U.S. Rep. Rangel/Congressional Democrats may be willing to trade on and/or mutually support, in the months ahead. This chapter of the tax reform saga is in its infancy. Stay tuned....

Tags: aternative minimum tax, Bush, corporate tax rate, corporations, global economy, income tax, Paulson, Rangel, tax rates, tax reform, taxes