U.S. lawmakers desperate for revenue are looking anew at changing the tax treatment of profits earned by hedge fund and private equity managers, congressional sources said on Tuesday, a move that would hike their taxes considerably.
A proposal to change the tax treatment of fund managers' profits known as "carried interest" last year passed the U.S. House of Representatives, which has approved such measures several times only to have them die in the U.S. Senate.
But as lawmakers run out of revenue to offset things such as a pending bill in the Senate to extend unemployment insurance, the idea is getting a second look by once skeptical senators, congressional aides said.
The Senate last month approved a $140 billion bill to extend jobless benefits through the end of the year and renew a series of popular tax breaks. That bill also closed several tax loopholes to bring down the costs, but the House then used some of those revenues in its healthcare overhaul, hence the need for more revenue.
President Barack Obama backs the change to carried interest and included it in his 2011 budget plan.
The bill passed by the House in December would raise nearly $25 billion over a decade.
Under current law, profits earned by investment fund managers at hedge fund and private equity firms are taxed as capital gains, a 15 percent tax rate, instead of as ordinary income, which would subject them to the highest 36 percent marginal income tax bracket.
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Comment: This should do wonders for our economy...no industry and high taxes is always a recipe for prosperity.