Baucus, Levin to Seek Higher Tax on Executives at LBO Firms, Hedge Funds

Senator Max Baucus and Representative Sander Levin today will propose a tax increase on so-called carried interest paid to executives at private equity firms, hedge funds and other investment partnerships.

Levin, chairman of the House Ways and Means Committee, and Baucus, chairman of the Senate Finance Committee, said a tax- and-spending package that lawmakers aim to put to a vote in the U.S. House by tomorrow would also provide tax relief to state and local governments and help restore the flow of credit to small businesses.

“By promoting jobs here in the U.S. and cracking down on loopholes that encourage companies to move overseas, we strengthen opportunities for American workers and businesses,” said Levin, a Michigan Democrat.

The bill would also extend unemployment and health benefits through the end of the year, Levin said.

Managers of investment partnerships typically are paid 2 percent of fund assets as an annual management fee and 20 percent of the profit earned for investors above certain levels. While the management fee is taxed as income, the share of profit, known as carried interest, is taxed at the lower capital-gains rate, currently 15 percent and slated to rise to 20 percent in 2011.

A summary of the still-unreleased legislation said it would allow carried interest that reflects return on invested capital to continue to be taxed at capital gains rates.

For other funds, “the bill would require investment fund managers to treat 75 percent of the remaining carried interest as ordinary income,” the summary said.

The House has approved tax increases on carried interest paid to private equity executives three times in recent years only to see the measures die in the Senate. The proposal has won broader support this year amid growing pressure to avoid adding to the deficit.

To contact the reporter on this story: Alison Fitzgerald in Washington at

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