Wednesday, June 09, 2010

Investment Pros Still Hoping For Better Terms On Carry Tax

From the WallStreetJournal.com:

Proposed new Senate legislation on carried interest taxation offers slightly more favorable terms to the private equity and venture capital industries than a bill already passed by the House of Representatives, but investment professionals continue to hope for better.

An amendment introduced by Sen. Max Baucus (D-Montana) suggests that beginning in 2013, 65% of carried interest would be taxed at normal income rates, while 35% would be taxed as capital gains. The House proposal set a 75%-25% split.

Unlike the House version, the Senate version also offers incentives for fund managers who hold investments for the long term, reducing the percentage of carry taxed as ordinary income to 55% for investments owned for at least seven years.

Both versions of the bill would phase in the higher tax rate, taxing 50% of carried interest as ordinary income in 2011 and 2012.

Carried interest has long been taxed at capital gains rates, currently around 15%. The normal income tax rate, in contrast, is currently around 35%.

The private equity industry has been lobbying heavily against the higher tax rates, and some senators have expressed concern the changes could stymie investment.