New House Tax Man No Fan Of Carried-Interest Loophole

Mar 5 2010 | 2:51pm ET

If hedge fund and private equity executives thought they’d caught a break with the departure of Rep. Charles Rangel (D-N.Y.) from the helm of the House of Representatives’ tax-writing committee, think again.

Rep. Sander Levin (D-Mich.) has proven no less amenable to closing the so-called “carried-interest” loophole, which could cost alternative investment managers billions than his predecessor. In fact, Levin is a sponsor of the current bill seeking to more than double the taxes paid by many hedge fund managers.

Under Levin’s bill, carried-interest—a managers’ share of his or her fund’s profits—would be taxed as ordinary income, rather than capital gains. That would push the top rate on that money from 15% to 35%.

“This is a basic issue of fairness,” the Levin, the older brother of Sen. Carl Levin (D-Mich.), said in January. “If you put your own money at risk, you get taxed at the capital gains rate. If you put other peoples’ money at risk, your profit should be taxed as ordinary income.”

Rangel stepped down from his post as head of the powerful House Ways and Means Committee temporarily as the House Ethics Committee investigates potential fundraising and personal finance violations.

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