Senate weakens bid to tax Wall Street like rest of us

[Better Believe It]

Senate weakens bid to tax Wall Street like rest of us
By KEVIN G. HALL AND DAVID LIGHTMAN
McClatchy Newspapers
June 8, 2010

WASHINGTON -- Senate Democrats on Tuesday weakened efforts to end a controversial Wall Street tax break, watering down a bid to raise taxes on managers of hedge funds, private-equity funds, venture capital firms and other business partnerships.

Currently, managers of these investment funds are compensated with a share of the fund's profits, referred to as "carried interest." This compensation is taxed as a capital gain, and the capital gains tax is now 15 percent.

Senators scaled back the House plan to tax as "ordinary income" some 75 percent of the fund-income these managers receive. Instead, the Senate would trim the tax hit to 65 percent, and 55 percent for assets held longer than seven years.

Sen. Olympia Snowe of Maine, a centrist Republican, wants to see more deficit reduction and thought "some of these (fund-manager) earnings should definitely be treated as ordinary income."

Other senators said fairness is the issue.

"It's certainly unfair that a hedge fund manager never has to pay the same tax rate as a teacher or firefighter," said Sen. Claire McCaskill, D-Mo. "But then again, we want to continue to encourage the creation of capital investment."

The financial sector argued that's just what's at risk.

"The proposals will stifle innovation and the free flow of capital," said Scott Talbott, the chief lobbyist for the Financial Services Roundtable, which represents big financial firms. Money that could be reinvested would instead flow to government, their logic goes.

The National Venture Capital Association, whose members help finance start-up tech firms, welcomed the Senate retreat. Spokeswoman Emily Mendell described the Senate language as "moving in the right direction" because it made exceptions for longer-term investments.

Read the full article at:

http://www.miamiherald.com/2010/06/08/1670087/senate-weakens-bid-to-tax-wall.html

[gateley]

1. Sigh. Like so many issues, it's a step in the right direction - we just have to

keep the momentum going. And Repubcans out of Congress :7

And good for Olympia Snow!

[DJ13]

2. What a cop out

"It's certainly unfair that a hedge fund manager never has to pay the same tax rate as a teacher or firefighter," said Sen. Claire McCaskill, D-Mo. "But then again, we want to continue to encourage the creation of capital investment."

[Better Believe It]

3. " we want to continue to encourage the creation of capital investment." Via tax evasion!

[rfranklin]

7. But hedge funds, by definition, are high leverage gamblers...

who basically create no jobs or businesses.

[proudohioan]

4. My response to Senator McCaskill might be something like

We would also like to encourage the creation of public education and public health care.

Ah, but yes, always that 'trickle down' theory. How's that trickle down thingy working for ya?

I could curse the day that Reagan was born.

[Dawson Leery]

5. And McCaskill won nothing. Jim Talent lost.

Chances are she will be ousted in 2012.

[ProSense]

6. No they didn't

The move is the strongest indication yet that financiers will pay higher taxes to help close an expanding U.S. budget gap. Congress is taking aim at the perceived excesses of the financial-services industry, but the proposed changes have implications well beyond Wall Street.

The proposed law would tax "carried-interest" income, or the share of profits that fund managers receive as part of their compensation. This income is currently taxed at a 15% rate, while the ordinary income by most wage earners is taxed at up to 35%. The new law would raise the tax rate for partnership income to an effective 30% in 2011 and 33% in 2013.

Those sponsoring the bill say the proposed measure rights a fundamental unfairness in the tax code. Lawmakers say that the people running partnerships have been paying capital-gains rates on what were basically wages.

<...>

The Senate plan—slightly milder than a House bill passed last week—also includes what is known as an "enterprise-value tax" provision. It would tax the sale of a private-equity firm, hedge fund and real-estate partnership at higher rates. The new measure seeks to impose higher taxes on lucrative transactions, such as Blackstone Group's initial public offering in 2007.

link

[4lbs]

8. You can always count on Senate Democrats to fold like a poker player who only has a 2 and a 3 in

his hand.