Obama To Seek Higher Taxes For Hedge Fund, P.E. Managers

Feb 23 2009 | 12:36am ET

President Barack Obama has committed to spending almost $1 trillion to stimulate the moribund American economy. Now, he’s looking to hedge fund managers to help foot another big bill: The U.S. budget deficit.

Facing a $1.3 trillion shortfall, Obama says he plans to cut that figure by more than half by the end of his first term, despite the hundreds of billions going into his economic stimulus plan. The president’s plan to reduce the deficit to $533 billion includes higher taxes on the wealthy, as well as higher taxes on hedge fund managers.

Obama is set to propose taxing the carried interest earned by hedge fund and private equity fund managers as ordinary income, rather than as capital gains. That could more than double the tax alternatives executives pay on the vast majority of their pay.

The new money would be used to pay down the deficit, alongside increased revenue from taxpayers earning more than $250,000 a year and the decreasing cost of the war in Iraq. Obama is also expected to propose allowing his predecessor’s much-debated tax cuts for wealthier Americans lapse next year.

During the final two years of President George W. Bush’s term, Democrats in Congress tried on a number of occasions to increase taxes on hedge fund managers, including by closing the so-called carried-interest loophole. All of those efforts failed in the face of Republican opposition and a threatened veto.

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