Carried Interest Tax Hike Proposed In U.S. House

Apr 6 2009 | 2:07am ET

The battle over taxing carried interest has returned to the floor of the U.S. House of Representatives. Rep. Sander Levin (D-Mich.) on Friday introduced a bill that would increase the tax rate on alternatives managers’ share of the profits of their funds.

President Barack Obama’s budget proposal also calls for closing the carried interest loophole. Earlier efforts by Democrats to change the way carried interest is taxed—currently, hedge and private equity fund managers pay the 15% capital gains rate on the income—failed in the face of Republican opposition. But Democrats made big gains in both house of Congress in last year’s election, and captured the White House.

Under Levin’s legislation, carried interest would be taxed as ordinary income, with a top rate of 35%.

“This is a basic issue of fairness,” Levin said in a statement. “This proposal is not about taxing investment, it’s about ensuring that all compensation is treated equally for tax purposes.”

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