Thursday, August 2, 2007

Well, That Didn’t Take Very Long!

In Tuesday’s WSJ Brody Mullins and Sarah Lueck declared, “Some prominent Democrats are beginning to rethink proposed tax increases on hedge-fund and private-equity managers' earnings, after an aggressive pushback by industry lobbyists and arguments that the impact could extend far beyond Wall Street.”

"When you first hear about it, it seems like, 'Yes, this looks like an appealing way to generate a lot of revenue,' but when you study it more it seems like there are some serious unintended consequences," said Rep. Brian Baird of Washington, a member of a coalition of centrist Democrats who often play a deciding role on business and tax bills."

As Mullins and Lueck note, “Among other things, lawmakers say they worry a tax boost could take a bite out of public pensions' investment returns, adversely affect financial-sector profits and employment or, more broadly, disrupt investment incentives.

“It remains to be seen, however, how any individual Democrat might vote on the issue, especially if it is combined with another, more popular Democratic priority. One such vehicle might be legislation to reduce the hit of the alternative minimum tax, which was designed to prevent the richest Americans from dodging their taxes but will ensnare growing numbers of middle-class taxpayers. That combination would fit with Democrats' broader push for tax equity.”

The real threat is its impact on public employee pension funds. Public employee Unions are one of the Democrats most powerful constituents.

According to Mullins and Lueck, “New York Sen. Charles Schumer, the top fund-raiser for Senate Democrats -- and a perennial favorite of Wall Street donors -- was among the first in his party to question the legislation. He says Congress shouldn't single out hedge-fund and private-equity managers. Any legislation, he says, should be expanded to include managers of other investment partnerships, such as real estate, oil and gas, timber and agriculture investment vehicles. Such a move, though, would likely boost opposition to it.

“Lawmakers' emerging concerns may open the door to compromise. Some Democrats have discussed a plan to raise the tax on carried interest above 15%, but lower than the 35% proposed in the House bill, an idea floated by some in the private-equity industry.”

Still, Charels Rangel (D-NY) supports the tax hike, in fact, there are few tax hikes he doesn't support, so it'll be interesting over the next few months.


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