Democrats Eye Millionaire Surcharge To Replace Carried Interest Hike

Oct 5 2011 | 11:44am ET

The good news for hedge fund managers is that Senate Democrats are crafting a new version of President Barack Obama's jobs-creation bill that will eliminate his proposal to increase taxes on their performance fee income. The bad news is that they're likely to replace it with another levy that could hit hedge fund managers hard.

Senate Majority Leader Harry Reid is working to craft a bill to appease members of his own party, several of whom balked at some of the revenue-raisers Obama proposed to pay for the $447 billion plan. Among the provisions on the chopping block is the closure of the so-called carried interest loophole, which allows hedge fund managers to pay the much-lower capital gains rate on their incentive fee income, rather than the ordinary income rate.

Also under fire is Obama's plan to increase taxes on families making more than $250,000.

Instead, Reid is likely to propose a 5% surcharge on people earning at least $1 million a year.

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