Wall Street Watches Proposed Capital Gains Tax Changes With Bated Breath

Private equity executives and hedge fund managers are watching with trepidation President Obama's budget proposal to tax carried interest on their investment income.

As per the Wall Street Journal:

Taxation of carried interest is back on the agenda a bit sooner than many private equity executives had expected...

Private equity executives had expected this to be a non-issue at least for this year. They have said the government was focused on more urgent problems, and pointed out that there are unlikely to be any profits to tax for quite some time anyway, given the economy's problems and a lack of exits in the industry.

"When senior executives from Detroit came to Washington in a private jet, this has got much more traction than some of these arcane issues we're talking about, so I think that the pressure is off," David Lobel, co-founder of mid-market buyout firm Sentinel Capital Partners, said at a recent conference.

The New York Times explains:

The president will propose to tax the investment income of hedge fund and private equity partners at ordinary income tax rates, which are now as high as 35 percent and could return to 39.6 percent under his plans, instead of at the capital gains rate, which is 15 percent at most.

Senior Democrats in Congress joined with Republicans in 2007 to oppose that increase. But with Wall Street discredited and lucrative executive compensation a political target, the provision could prove more popular among lawmakers.

McClatchy predicts that many hedge funds will not even be around to endure the new tax proposal - and thus to benefit the government:

Some of the president's proposed budget-balancing measures raise eyebrows, however. For example, Obama plans to collect more tax revenue by raising the rate of taxation on hedge fund managers, who now enjoy a 15 percent tax rate.

They run private investment pools for the wealthy and are compensated on a percentage of their capital gains, or investment earnings. Obama wants to tax hedge fund managers at the corporate tax rate, but these funds are dropping like flies in today's twin banking and credit crises, and it's not clear how many will be around to tax when the crisis eases.

Comments

[userw014]

So Wall Street is crying because of a tax o non-existent income? Good grief.

Now is the time to re-establish these taxes. Be principled.

[Jazzcomedian]

What capital gains?

[Iratus-vir]

It’s a travesty allowing anyone making hundred of thousand or millions of dollar a year paying the same amount of taxes as a person making $40K a year.
There is no way to slice or spin it to justify it.

[philosopherkingtomas]

rush Limbaughs taxes will be going up! thats good!
now all we need is the Fairness doctrine for cable and trash talk radio!

[research]

The best change we could make, it to bring back income averaging.

The people who start companies usually take losses for the first few years and then profits later. Often the profits come all in one year as the sell the company.

I believe in progressive taxation, because of the "gain" that money makes on making more money.

But it creates an unfair situation where people who's profits are "spiky", farmers, inventors, etc..

End up paying a mathematically unfair tax, unless income averaging is used.

If we are going to raise the Capitol gains tax, this is particularly applicable.

[bwillrogers]

Who cares about a bunch of people who contribute nothing tangible. Tax em higher.

[-0013]

Nothing tangible huh?

Here's a quick example of something tangible - college endowments and new buildings at colleges and universities.

Where do you think that $$ comes from? the people makign $80K a year in combined income?

[Mike4Obama]

Give me a break. People invested at the higher rates, they invested at the lower rates. People will invest where there is profit to be made.

[Badfickle]

Well said and so true. During the 40's until the 1980 the top tax rate was 74-90% and as a whole the economy was doing very well.

[-0013]

We're you paying 80% in taxes in 1975?

[Chavez08]

Fox News just reported that it was Reagan that landed the plane in the river, not Sully.

[olephart]

Yes and then he walked to shore and once there used a wash cloth to dry the soles of his shoes.

[ErnestineBass]

LMAO!!!

Sounds about "right".

[Chavez08]

Time to undo Reagans' damage. We had a good system before he and his corporate puppet-masters sabotaged us, we can have a good system again.

[lvdragonlady]

Taxation of carried interest - good. You make the money you have to pay takes on it.
Just had a great idea........since the banks and others in financial industry, feel the need to give out HUGE bonuses and golden parachutes, let the government setup a tax based of say 50% for anything over 500K and also a percentage on ANY stocks given in as part of a package.
Do this could reduce deficit very quickly. ANYONE found to be using USB to avoid taxes, should have ALL monies frozen until ALL taxes have been paid. Deficit will go down even lower.

PAY YOUR DARN TAXES YOU @$$.H.O.L.E.S - you are no better then anyone else.

[-0013]

Yes pay taxes on money you invested (i/o putting under your matress) which was already taxed before you invested it. Way to encourage investment.

[schatsie]

These capital gains are just an income tax gimmick... So make it progressive just like the income tax....Tell me why you think hedge fund managers should not pay income tax, I still don't get that...

[Chavez08]

Soooooo lonnng Reaganomics!!!

You won't be missed.

[mitsie]

I am sick and tired of Wall Street trying to blackmail the President, Congress and the American citizens by making threats. It is time that these people got a real job, or agree to work with the rest of us and try to come up with a solution.

Why is it that pundants, Republicans and Wall Street really don't want things to change? A HA it's because the rich want to keep getting richer.

[mh01]

You should look at who got the money from wall street in the last election cycle.

[vesaversa1]

39.6% is what it was when the republican messiah-R. Reagan was president , so i like to see the obstructionist oppose this measure from the Obama administration .

[magibrotherhood]

republican messiah! Good one.

[olephart]

No, he lowered the top rate to 28%. It was later raised to 31% and later to 39.6% under Clinton. That produced a vibrant economy and a balanced budget. Bush lowered it to 35% and capital gains to 15% and its been downhill ever since.

[mh01]

How did the economy look before Reagan was elected? And after his two terms?

[yappnmutt]

and why did reagan raise taxes? because he realized supply side economics and the laffer curve was total bovine waste. to be fair, though, after a glance at the highlights of the obambam budget, even he doesn't get the fact that money floats. the reason the wealthy are so wealthy has been because the middle class was well capitalized. the wealthy don't realize they could have had a lot more money if the middle class had a pay raise over the last 30 years.

[twofish]

Make some popcorn and pull up a chair. You're about to witness major tantrums. They have no shame, no sense of proportion, and no ethics; they get away with it because most people pay no attention to what's going on.

Also keep an eye on the next scheme to evade taxation, which is even now, I'm sure, being cooked up behind closed doors: "How can we profit from an economic meltdown?"

[lightningbolt]

its about time to raise the capital gains tax. a low capital gains tax rewards gambling in the stock market, while a high capital gains tax encourages people to do other more productive things with their time. its also unfair that everyone who works has to pay 35% while those who make money from the stock market pay much less.

[Peter007]

There is a river of capital flowing through out the world. Where ever that capital ( money) ends up, there is prosperity. Not much is flowing to Haiti. Little to Cuba. None to North Korea.
Capital flowed into Saudi Arabia to buy oil. Lots flowed into China to build factories.
We could pass a law and state no money is allowed to be invested in the United States. No foreign enterprise can buy stock in Google anymore.
Or we could pass a law that says if you invest money in Google, most of your return on investment has to go to politicians in DC.
Either strategy works.

[Badfickle]

Captial is not what brings prosperity. What brings prosperity is demand for products and wages which makes that demand possible. Where there is demand the capital will follow from a variety of sources. Without demand there is no reason for capital to do anything

[BPCentrisAmerican]

The irony of this astounding, no one that I know was begging for a capital gains tax cut when W. took office, yet now they we have them, the country is in the tank, where did all investment capital go republicans fantasize about, China, India Iraq, Dubai, where?

In the documentary, "Right America Feels Wronged", I'm listening to interviews with self proclaimed rednecks who don't have a pot to piss in or a window to though it off, whining about capital gains taxes, the stupidity of these people is astounding. One guy was in tears, a grown man in tears, over the pearl of the white working man, yet republican politicians haven't given a dam about working people since I can remember. Another woman was in tears over he 401K, not that I blame her, but it's not like neo-conservative free market economic policies work. The conservative base has a serious leadership problem, they are not in the corner of the folks they represent who are suckered into believing that the government they pay taxes for, dose not have to provide services, but it's fine to purchase contracts on weapons like the F22, which cost billions to develop and are to expensive to build, or wasting time on some marriage amendments. I grew in small town America, as was my father did, and we figured out that republicans are full of sh@t a long time ago

[redsongia]

Because a gains tax cut would CHANGE investment behavior, not reward people who were already following their interests and trippling their money. People were undertaking that risk voluntarily when the market was hot, now they are not. A tax cut this year functions more as a sweetener to invest than a tax break on wages, which puts money in peoples pockets so they'll spend.

Two very different goals; one designed to incourage a change in investment behavior for people who have accumulated wealth (i.e., get that money out from under your matress) the other designed to change spending behavior in people who are strapped and feeling that their future is precarious (i.e, go out to dinner once a week more than you would have, create jobs and support your local service businesses that are also just scraping by.)

[Treasonous1]

Ok how about we do slightly more target capital gains tax cuts. Say if you invest in enron you pay no taxes for ten years, but if you invest in walmart you pay 45% taxes on you capital gains. Which would you rather invest in? In case my point isn;t clear enough, people will invest if they feel they can make profit, even if they have to settle for less, while they are unleikly to invest if they feel they will have loses, cause there is no tax to pay on loses anyway. And even assuoming your analysis is correct, which as I have just stated is based on even more irration behavior than most investors have shown up to this point, then you are just asking to recreate a bubble that was brought about artificially through overconficance and willingness to take unnecessary risks which led to the unsustainable situation we face.