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The Carried Interest Debate Returns

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Oct 25 2007 12:00am EDT

The Carried-Interest Debate Returns

The WSJ's Sarah Lueck seems to say today that the idea of taxing carried interest – forcing private-equity honchos and hedge-fund managers to pay income tax on their income – is back. Two new taxes targeted at hedge-fund managers are being proposed by Charlie Rangel, one on the income-tax front and the other on the offshore-income front. But Edmund Andrews, in the NYT, covers the Rangel proposal as basically an idea for the kind of tax code a future Democratic White House might be interested in implementing, rather than as a real attempt to change the tax code this year.

So my feeling is that hedge-fund managers are going to be able to sleep well at night through all of next year, and that Rangel's proposals have more to do with the ongoing presidential election campaign than they do with changing the taxes we all will pay on our 2008 income. But I may be confusing a narrow proposal on the carried-interest front with a much broader proposal on fiscal policy more generally. Will it be possible for Congress to go ahead and tax hedge-fund managers more, perhaps in an attempt to offset the costs of defraying the alternative minimum tax, while putting to one side the rest of Rangel's proposals? And how much power does Chuck Schumer have to prevent that from happening?

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