‘Carried interest’ bill bites buyout biz

The taxman cometh for private-equity’s bigwigs.

Under proposed legislation introduced yesterday, partners in private-equity and hedge-fund firms, starting Jan. 1, 2013, would be required to pay a 35 percent tax on 75 percent of the profits they collect from the deals their firms complete. The remainder would be taxed at 15 percent.

“They’re hopping mad right now,” said a source familiar with the legislation of the private-equity firms. “It’s a tougher deal than they expected.”

Said Douglas Lowenstein, president of the Private Equity Council, in a statement: “This punitive . . . tax hike on growth investment by real estate, venture, private equity and other firms will hurt those companies that are most desperately in need of capital to sustain or create jobs and drive growth.”

After years of resistance, buyout bigwigs in recent weeks had resigned themselves to a hike in the so-called “carried interest” tax, and were hoping they had struck a compromise with Sen. Max Baucus, chairman of the Senate Finance Committee, in which the industry would end their opposition in exchange for an increase in the rate to 25 percent instead of 35 percent.

A longtime friend of the private-equity industry, the Montana Democrat has come under pressure from House Democrats and the Obama administration to back a tax boost in order to offset costs in the $150 billion American Jobs and Closing Tax Loopholes Act of 2010.

However, passage of the measure is not guaranteed.

“It comes down to if Blue Dog Democrats [a group of 54 conservative and moderate Dems in the House] are comfortable with a really big bill that will add to the deficit,” the source said. “I don’t see members walking away from this bill because of carried interest.”

The House vote is planned for Tuesday, with the Senate vote due May 28.