« Back

WASHINGTON (AP) - Senators on Wednesday will debate whether managers of hedge funds and private equity firms should pay higher taxes, an issue that gained prominence last month as Blackstone Group went public, enriching its top executives.

A House bill introduced last month would raise taxes from 15 percent to as much as 35 percent for managers who take a share of profits, known as "carried interest," from hedge funds, private equity groups and other companies set up as limited partnerships. The change would apply to asset management, real estate and energy partnerships, all of which use carried interest to compensate their managers.

Two senators, Democrat Max Baucus of Montana and Republican Charles Grassley of Iowa, have proposed increasing tax rates for publicly traded private equity firms, but their legislation would not affect managers. Baucus is chairman of Senate Finance Committee and Grassley is the ranking minority member.

The private-equity industry and its supporters argue that the lower tax rates are an incentive merited by the risk of the investments, such as the troubled companies that private-equity firms buy, turn around and resell a few years later. The supporters say the private-equity industry plays a unique role in the economy by spurring investment and restructuring.

Scheduled to speak at Wednesday's 10 a.m. Senate Finance Committee hearing are: Eric Solomon, assistant Treasury secretary ; Peter Orszag, director of the Congressional Budget Office; Andrew Donahue, head of the investment management division at the Securities and Exchange Commission; Kate Mitchell, managing director of Foster City, Calif.-based Scale Venture Partners; and, Marc Gergen, a law professor at the University of Texas, Austin.

« Back