A Democratic tax reform plan that would greatly increase the tax burden on hedge fund and private equity managers is one step closer to becoming a reality.
The powerful House Ways and Means Committee approved the bill in a party-line vote. Republican efforts to amend the proposal to both exclude real estate partnerships from the carried-interest provisions and to eliminate the tax hikes completely also failed along party lines.
In addition to raising alternative investment managers’ tax burden by some $50 billion over the next 10 years, the bill, sponsored by the Ways and Means chairman, Rep. Charles Rangel (D-N.Y.), would eliminate the alternative minimum tax, which could affect 19 million more households this year than last, when just four million paid it.
“For those people who have been able to be evading the various taxes and avoiding taxes, we’re sorry to include you in relief for 23 million people, but we think that’s fair,” Rangel said. Congress is pushing to pass AMT relief by mid-November; if it fails, millions of tax refunds may be delayed.
Republicans have countered that the revenue lost by eliminating AMT, which was created in the 1960s to keep wealthy taxpayers from claiming too many deductions, need not be replaced by increasing the tax rate on carried interest, or by taxing offshore income. The Senate has demurred on considering tax hikes for the alternatives community, and Rangel acknowledges that the bill faces a tough road ahead even if it passes the full House of Representatives, both in the Senate and with the president, who is expected to veto the measure.
Referring to the ranking Republican on the Ways and Means Committee and an opponent of his bill, Rep. Jim McCrery (R-La.), Rangel said, “I am concerned that what Mr. McCrery has said here may be the prevailing view on the other side of the Capitol.”