Carried Interest Tax Change in Obama Budget Proposal
As expected (by peHUB at least), President Obama's proposed fiscal 2010 budget includes a provision to reclassify the tax treatment of carried interest, from capital gains to ordinary income. This would dramatically increase the taxes paid on profits by buyout firms, venture capital firms, hedge funds and any other investment partnership (real estate, timber, oil, etc.). The basic math is that this change would raise a PE firm's taxes on investment profit from 15% (current cap gains rate) to around 35% (ordinary income level for top brackets). That's a big jump, although it's worth noting that capital gains rates themselves are universally expected to rise to at least 20 percent. As I've written ad nauseum, this is a change I support. Carried interest is, at its heart, a fee for services. A buyout pro or VC should not receive capital gains treatment on take-home generated by investing someone else's money. The limited partner is the person or institution that took the capital risk, so it's the one deserving of the capital gains rate (and would continue to receive it under Obama's plan). If a buyout pro or VC contributed
