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Carried Interest posts

Private Equity Tax Could Have Unintended Consequences

Posted Feb 8th 2010 10:30AM by Tom Johansmeyer (RSS feed)
Filed under: Private Equity

The federal government needs cash, and we all know it has to come from somewhere. As no politician has ever been criticized (at least not broadly) for going after the folks with the deepest pockets, private equity industry needs to dig in for what could become a fierce battle over new taxes.

The issue isn't new. For a while now, the feds have been kicking around new taxes on private equity firms based on how profits are classified. Yet, this search for cash could have unintended consequences, as the definitions used could wind up taxing venture capital funds and small partnerships, which could be the keys to an economic recovery. Critics argue that the tax may not bring in as much money as the government hopes.

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New taxes to soak private equity and hedge funds

Posted Feb 27th 2009 1:30PM by Tom Taulli (RSS feed)
Filed under: Private Equity, Blackstone Group L.P (BX)

Who's going to pay for the massive budget deficits? Well, how about the rich folks?

This is certainly a theme in President Barack Obama's 2010 budget. Thus, if you are an alternative asset manager – that is, you operate a private equity firm or hedge fund -- then you may have to pay some big-time taxes. In fact, the bite could add up to $24 billion over the next nine years.

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'Score one for the barbarians' as tax on private equity is shot down

Posted Dec 7th 2007 1:38PM by Michael Rainey (RSS feed)
Filed under: Private Equity

"Score one for the barbarians" -- so reads the New York Post today. The reference, of course, is to Barbarians at the Gate, the sordid tale of the leveraged buyout of RJR Nabisco in the 1980s. Today, the private equity barbarians have won another battle: there will be no new tax on carried interest, at least not this year.

Charles Rangel, the House Ways and Means Committee Chairman has dropped a proposed change in the tax laws that would raise taxes on hedge fund managers. The change was relatively simple, raising the tax rate on fund profits and management fees from the current 15% to the 35% that corporations (are supposed to) pay. Needless to say, the private equity industry fiercely opposed the change, which would have raised $54 billion in new taxes.

The change in the tax code was part of a bill aimed at alleviating the effects of the Alternative Minimum Tax, which now affects 23 million households. The idea was to "fix" the AMT to keep it from being applied too broadly; the resulting loss in revenue could then be made up by increasing taxes on fund managers. But it looks like the managers are too powerful to allow that to happen, at least this time around. Hey, do you think this could have anything to do with campaign contributions and the growing political power of the newly gilded elite? Nah, couldn't be . . .

Hedge funds face more trouble on Capitol Hill

Posted Oct 1st 2007 9:55AM by Jonathan Berr (RSS feed)
Filed under: Employees, Private Equity, Market Matters, Citigroup Inc. (C), Economic Data,

The hedge fund industry, which is as popular on Capitol Hill as Iranian President Mahmoud Ahmadinejad, may have more trouble coming its way from the U.S. Congress.

The Wall Street Journal is reporting that the Senate Finance Committee may change the tax rules to prevent offshore hedge funds from using derivatives to avoid withholding taxes on U.S. stock dividends, a practice which costs the U.S. treasury $1 billion in revenue.

Wall Street firms such as Citigroup Inc. (NYSE: C) and Lehman Brothers Holdings Inc. (NYSE: LEH) are "bracing for questions," the paper said, Maybe that's a polite way to say that the companies are going to get tons and tons of rude questions from irate Democratic senators who are convinced that they are cheating the government.

The funds also are facing scrutiny over how managers can pay 15 percent capital gains tax on their performance fees instead of the 35% ordinary top income tax rate, a tax break that Talking Points Memo estimates costs taxpayers between $4 billion and $6 billion.

Hedge funds , though, are fighting back. As Politico.com notes, they spent $1.3 million lobbying Congress last year, up 46% from 2002 while managers at the top 30 funds increased their political donations by about 17% to $14.7 million between 2004 and 2006.

As the presidential election heats up, the industry will become even more generous.