Fight to raise carried interest tax
What will it take to raise taxes on carried interest?
At a minimum, it will take a lot of political wrangling, and we're starting to see signs of that now. The latest sign comes from the Obama Administration and a Congressman, both of whom seek to raise carried interest taxes to normal income tax levels from the current long-term capital gains tax level.
That concept of course is anathema to the private equity industry, which will fight it tooth and nail. Perhaps to win some sort of compromise, the administration has decided that its proposal to raise taxes on carried interest will not apply to profits earned when buyout fund founders and other executives sell some or all of their holdings in their own firms, according to Bloomberg.
Previously, the administration "backed legislation that would have increased rates on carried interest as well as the so-called enterprise value."
Whether this proposal will be enough to induce private equity firms to agree to raising taxes on their performance fees is unclear. Most likely, it will not. The industry seized on the enterprise issue to show that private equity fund managers were being singled out. While the move by the Administration may be an attempt to moot that argument, in the end, the debate will be about performance fees.
We'll see where this goes. The rhetoric will be florid. The industry will portray proponents of the idea as tax happy, while their opponents will paint the private equity industry as a creature of the federal government.
- here's the article