Fund managers dodge tax bullet

US fund managers have once again escaped a proposed tax increase on carried interest, a provision which could possibly lose further support following the November elections.

Last week US lawmakers went on recess without passing the Tax Extender’s package introduced by Democratic chairman of the Senate Finance Committee Max Baucus last month.

The bill – which aims to help finance a number of tax cuts through tax increases in other areas – would prevent GPs from paying taxes entirely at the capital gains rate on carried interest. Under certain rules, up to 75 percent of carry could be treated as ordinary income beginning next year.

Mark Heesen

If passed, the proposal is estimated to raise approximately $14 billion in revenue over the next decade.

Republicans have been able to thus far block any attempts to further increase tax on carry and are expected to gain seats in Congress this election cycle.

Should Republicans gain control of the Senate or House following the November elections, the prospects for major legislation to be enacted, such as the tax bill, decrease significantly, said Mark Heesen, president of the National Venture Capital Association, in a blog posting.

“The tax on carried interest is by no means off the table,” Heesen was quoted as saying by various media reports, “but it's difficult to see it getting through in the lame-duck, particularly if Republicans take over the House.”