Posted on 06/25/2008 2:17:59 PM PDT by devere
The House of Representatives on Wednesday approved a bill that would protect about 25 million taxpayers from paying a tax that originally was meant for only the very wealthy.
The House passed the alternative minimum tax relief bill on a vote of 233-189 over the objections of the White House, which does not like its revenue raising measures.
One provision would require private equity fund managers to pay ordinary income taxes, as high as 35 percent, on their earnings instead of the 15 percent capital gains rate they now pay. That would raise nearly $31 billion over 10 years.
"The administration does not believe that the appropriate way to protect the 26 million Americans from higher 2008 AMT liability -- including 22 million that would be newly exposed to the AMT -- is to impose a tax increase on other taxpayers," the White House said in a policy statement on the bill.
The House action is the opening move on what has become an annual ritual of providing temporary AMT relief to millions of middle class taxpayers who would otherwise have to pay it.
The bill has to go to the Senate where raising taxes on equity fund managers faces stiff opposition from Republicans and some Democrats.
(Excerpt) Read more at reuters.com ...
so what is “very wealthy?”
I’m not buying it devere, Democrats think that somehow “EQuity Fund” managers are financial imbeciles that will simply sit still for a 14% tax increase?
When this revenue level doesn’t meet the projected goals, the Democrats will revert to form...
What the managers are earning is capital gain. It is not compensation. That is just liberal democrat spin. More tax the rich-redistribution ideas.
“If how many shares they get is decided after whatever gain they take, then the entire amount should be ordinary income because they got the payment with no risk of its value increasing or decreasing.”
Typically equity fund managers get 20% of the capital gains on their client’s capital as their main compensation, and this is truly compensation for their labor as fund managers. I see no logical reason why they deserve a capital gains preference on this income, which is the wages for their labor, not the gains from risking their own money. It is rare that I ever agree with the Democrats in Congress, but in this rare instance they seem to be correct.
“Democrats think that somehow “EQuity Fund” managers are financial imbeciles that will simply sit still for a 14% tax increase?”
Actually it would be a 133% tax increase, from 15% to 35%.
My nephew, a Harvard MBA who lives in a Westchester mansion, runs an equity fund. I’m quite sure he won’t close up shop just because he now has to pay taxes on the same basis as the rest of us. By the way, he’s a great guy with a nice wife, three kids, and a very friendly dog.
They won’t be paid less, so they will instead raise the amount they are paid to compensate for the extra tax, meaning people who invest money will get “taxed” more than the capital gains rate for their risk of capital.
But I see your point as well, if they are doing a job and getting paid, why should they pay less tax than others.
The bigger problem I see is that changing it has consequences, because the market is currently based on that tax rate.
It’s like I also think we should get rid of the mortgage interest deduction, or else put back all interest deductions. But if you eliminate mortgage interest deduction, it will make trouble, big trouble, in the markets until it settles out and people get re-aligned for the new tax situation.
I can see him restructering his pay package to avoid that 13% increase, that is the Democrat error, 13% on a say 2 million dollars is no small amount, I’m sure he would like to keep that in his own pocket with the money working for his family.
How can the Democrats raise taxes and then pass that 300 billion dollar Farm Bill....
Are people missing the forest for the trees here? How many equity fund managers are being affected? 25 million? Probably not. That’s the number of taxpayers being offered tax relief by this bill, if I understand the article. I’m all for cutting the taxes for 25 million people. Why all the concern for equity fund managers?
“I see no logical reason why they deserve a capital gains preference on this income, which is the wages for their labor, not the gains from risking their own money.”
You grossly misrepresent what is happening and if you do not see the logic in it being capital gain, then you do not have much, if any, tax logic. If you understood how the arrangement works using limited partnerships and you know tax logic, it should be capital gain.
I think Obama’s definition of “very wealthy” is anyone making over $35,000. Don’t know anyone else’s.
“Why all the concern for equity fund managers?”
Because it is the same democrat soak the rich scheme. You may note that Obama wants to soak the rich (people making over $250K) and redistribute the money to other folks making less. Should we not be concerned about the few people making $250k because there are not many of them? If you believe this, then you are a liberal democrat on fiscal tax policy.
That's what I'd like to know. They really don't make that much money from the management of the funds. They're the little guys, private business owners, I work for one. He is NOT a wealthy person due to the equity fund management. The other one I know, my brother, is barely making it.
By the way, the real forest is that the AMT was never supposed to reach the middle class and thus these tax revenues do not belong to the government and thus there is no need to replace the AMT cuts as the democrats are suggesting with these soak the rich tax increases.
“Why all the concern for equity fund managers?”
We certainly shouldn’t slam it to the fund managers if they are already being fairly taxed. But if they truly enjoy an unreasonable and illogical tax preference, it does make sense to take it away. The Democrats aren’t always wrong — just almost always!
The democrats are always wrong on tax and fiscal matters. If you want to read more about the tax logic, then this is a very good read, but it can be deep if you do not have background in tax law:
By the way, I am a tax attorney myself and I have many clients who are profit owners in limited partnerships.
Very fine article.
It seems to me that the return on equity of general partners that is in excess of the rate of return to limited partners should be treated as ordinary income attributed to their labor as professional investment managers. The rest of the gain on their invested capital should be treated as capital gains, if that’s the treatment it would otherwise enjoy.
Interesting subject.
As far as the AMT goes, all you have to do is stumble into it! We got nailed by the AMT for the first time last year when, in order to pay for extended nursing home care, we cashed in a life insurance policy. To add insult to injury..., for AMT purposes, only your medical expenses in excess of 10 PERCENT of your AGI are deductible rather than those in excess of 7% (the general rule)!
Of course, you acquire "braggin' rights" and can proudly proclaim that you are now, by the AMT definition..., RICH!
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