Democrat Proposes $48 Billion Tax Hike For Hedge Funds, Private Equity

Oct 25 2007 | 3:56pm ET

A tax bill called by its author the “mother of all reforms” would seriously curb the alternative investments industry’s allowance.

Rep. Charles Rangel (D-N.Y.) unveiled a tax overhaul that would protect individual taxpayers from the alternative minimum tax and significantly cut corporate taxes, but would increase the tax burden on hedge funds and private equity firms by almost $50 billion.

Under the House Ways and Means Committee chairman’s proposal, introduced today, the carried-interest tax rate, under so much fire recently, would be more than doubled, from 15% to 35%. That tax hike would raise about $25.7 billion over 10 years. Rangel’s bill would also impose taxes on offshore deferred compensation, used by many hedge fund managers to shield their assets, to raise another $22.7 billion. The new revenues would offset those lost by the corporate tax cut—the top corporate marginal tax rate would fall from 35% to 30.5%—and the repeal of the alternative minimum tax, which imposes a surcharge on wealthier households.

Rangel’s measure also includes provisions on Social Security and Medicare taxes, securities sales and the child tax credit.

“We are not raising taxes. We are restructuring the rate of taxes so that at the end of the day 90 million taxpayers will walk away saying, ‘I’ve got a decrease in taxes,’” Rangel said. “Do people think a system is fair when you find people making hundreds of millions of dollars paying taxes at a lower rate than the secretaries and the janitors and the common laborers?”

The proposal quickly came under fire from top Republicans. Rep. Jim McCrery (R-La.), the ranking member on Rangel’s committee, said that he “can’t support the bill,” which Treasury Secretary Henry Paulson said “would dramatically raise taxes in ways that in my judgment would hinder America’s ability to compete in the global economy.” Some Republicans called Rangel’s bill “the mother of all tax hikes,” saying it would raise taxes by $1 trillion over 10 years.

The leading candidates for the Republican presidential nomination also laid into Rangel’s proposal—though neither mentioned the corporate tax cut or the AMT repeal. In fact, the frontrunner, former New York City Mayor Rudolph Giuliani, who said the bill would be “devastating,” seems to think the proposal would raise corporate taxes.

“It makes no sense to be raising the rate on capital gains when we want more investment in this country,” he told an Iowa radio station. “All we’re saying to people is go find some place else to invest. The corporate tax rate in America is the second-highest in the world. The President of France wants to lower the corporate tax rate in France because France is losing money, and their rate is lower than ours. So we’re got a group of Democrats who want to go to the left of France in our economic policy.”

For his part, former Massachusetts Gov. Mitt Romney blasted the “massive tax increase bill for the American people.”

Rangel said the bill will not go to a vote this year, though Treasury Secretary Paulson urged Congress to act by Nov. 7 to give the Internal Revenue Service enough time to implement any reforms.


In Depth

Prominent Hedgie Renee Haugerud Embroiled in Ugly Child Custody Battle

Sep 10 2014 | 2:43pm ET

A high-profile hedge fund manager is caught up in a nasty child custody battle in...

Lifestyle

Full House’s Stamos To Play TV Hedge-Fund Manager

Sep 5 2014 | 4:43am ET

The life of a Connecticut hedge-fund billionaire is coming to the small screen.

Guest Contributor

The Cult of Loss Aversion: A Call to Rethink Risk in Global Macro Investing

Sep 4 2014 | 5:45am ET

In the wake of a traumatic loss, whether it is financial or personal, it is just...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

In search of the ‘new normal’ at the Fed

The Federal Reserve keeps baby-stepping toward a “normalization” of monetary policy. But just what is normal?

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.