As part of his strategy for reigning in the federal deficit, president Barack Obama plans to raise taxes on carried interest for hedge funds and private equity managers, according to officials within the administration. The rate would jump from 15 percent (the usual for capital gains) to income tax rate, 35 percent — a change [...]
As part of his strategy for reigning in the federal deficit, president Barack Obama plans to raise taxes on carried interest for hedge funds and private equity managers, according to officials within the administration. The rate would jump from 15 percent (the usual for capital gains) to income tax rate, 35 percent — a change would more than double the tax alternatives these executives pay on most of their income.
This is not a novel idea. Just last year, the House of Representatives approved a bill that would have upped taxes on carried interest, but it was killed in the Senate. Still, this new plan seems to have caught the private equity community by surprise. Many predicted that Obama would level his sights at more pressing problems, considering the drop in profits to tax in the industry, according to the Wall Street Journal.
But Obama means business. He recently announced his goal to slash the $1.3 trillion deficit in half (to $533 billion) within the next four years. Certainly, his very expensive economic stimulus package isn’t helping. But he seems confident that raising taxes for those who make more than $250,000 a year (including many hedge funders) — in addition to dialing down spending in Iraq — could go a long way toward closing the gap.
While both Democrats and Republicans opposed the increase in taxes on carried interest in past years, the loss of credibility on Wall Street has turned executive compensation into a ripe political target. No one anticipates major roadbloacks for the plan.
A quick explanation of carried interest, below:
0 Responses to Obama’s deficit plan hikes tax on carried interest for hedge funds