Investment group blasts tax increase on carried interest

Douglas Lowenstein, president of the Private Equity Council, on Thursday sharply criticized lawmakers for including a tax increase on carried interest in legislation extending several tax and spending measures. 

"At this time of great market uncertainty, now is not the time to upend more than 50 years of partnership tax law characterizing carried interest as a capital gain," he said. "This punitive, 157 percent 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." 

Earlier today, Senate Finance Chairman Max Baucus (D-Mont.) and House Ways and Means Chairman Sandy Levin (D-Mich.) announced a deal had been struck on the extender bill. 

A rough estimate shows the legislation will cost at least $200 billion, but only a portion of its measures will be offset. The tax increase on carried interest is expected to be a major revenue source to help pay for the bill. 

Under the legislation, sources told The Hill that carried interest for the first 2 years will be taxed at ordinary income and capital gains rates — a 50/50 split, which amounts to a tax rate of roughly 30 percent. That split changes to 75/25 after 2 years, which amounts to a 35 percent rate.

A score for this provision from the Joint Committee on Taxation has not been released. 

The bill is expected to go before the House Rules Committee later Thursday with a chamber vote on it tomorrow.