G.O.P. Tax Overhaul Would Boost Alts. Taxes

Feb 27 2014 | 12:11pm ET

Once again, the so-called “carried-interest” tax loophole is under threat. This time, however, it’s come under attack from an unusual side.

A tax overhaul proposed by Republican Rep. Dave Camp would tax carried interest as ordinary income, with a rate of up to 35%. Currently, hedge and private-equity managers pay the capital-gains rate on their performance fees, up to 23.8%.

But much like earlier efforts to close the loophole, all of them led by Democrats, the new proposal is already being called dead on arrival.

Sen. Mitch McConnell (R-Ky.), the Republican leader on the other side of Capitol Hill, said that Hill’s plan has no chance of becoming law. Carlyle Group co-founder David Rubenstein certainly doesn’t seem concerned.

“It’s unlikely that will get into law,” he said. “I don’t think there is likely to be any tax reform legislation passed by this Congress at all.”

Camp’s proposal would cut corporate taxes from 35% to 25% and reduce the number of individual tax brackets from seven to two. The Michigan Republican, who leads the tax-writing Ways and Means Committee, wrote in The Wall Street Journal yesterday, “We can clean up provisions like carried interest that allow certain private-equity firms to get the investment-income tax rate on what anyone else would call normal wage income.”

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