TAX NEWS - June 2010

US Tax: The Tax Man Eyes The Fund Manager

Next week could be a rough one for some fund manager paychecks. That's when the Senate is expected to vote on a jobs bill that includes a big tax hike on private equity firms, hedge funds, and some real estate fund managers, says the WSJ. Their income tax hit would rise to 35 percent on "carried-interest" income, which gets taxed at a more friendly capital-gains-like rate of 15 percent. The rate on partnership income, a tax that would hit the sale of a variety of financial firms specifically, would rise to 30 percent in 2011 and 33 percent in 2013.
 
Take heart, managers: The current language is softer than the House bill, and there's still a few days left to lobby. But don't expect a surge of sympathy. That higher tax rate only brings the rate on managers' profit sharing to the same level everyone else pays on ordinary income (for a solid take on why closing the gap is a good thing, see Fred Wilson). Plus, as the tax-the-rich blitz continues on Washington, always keep in mind that the folks crying foul over higher rates are likely old enough to remember when the government's take was much, much higher.

On the other side of the ledger, the bill, sponsored by Rep. Sander Levin (D-Mich.) and Max Baucus (D-Mont.), sees the carried interest tax adding $14.5 billion to revenues over 10 years.