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New U.S. tax panel head targets hedge fund taxes


Date: Friday, March 5, 2010
Author: Reuters

Representative Sander Levin will take over the Ways and Means tax-writing panel in the U.S. House of Representatives pending the outcome of ethics probes against fellow Democrat Charles Rangel.

Levin may be best known on Wall Street for championing a bill to change the tax treatment for hedge and private equity fund advisers, taxing so-called carried interest as ordinary income.

Below is a summary of this proposal and other positions Levin has taken on tax issues under the panel's jurisdiction.

CARRIED INTEREST

Levin has several times sponsored a bill to change the tax treatment of investment income earned by private equity, hedge funds and certain other managers. Currently the income is treated as a dividend income, taxed about approximately 15 percent.

Advocates argue that is a huge tax break for the wealthy managers, and their income should face an ordinary tax rate. The top tax rate is now 35 percent.

The bill, backed by President Barack Obama, has passed the House three times but meets fierce lobbying by industry and has never progressed in the Senate, where it faces opposition from some Democrats and most Republicans.

TAX HAVENS

Levin has sponsored a bill to stop tax haven abuse, to amend the tax code to impose new rules on transactions in offshore tax havens, among other measures. The bill, which mirrors one sponsored by his brother, Senator Carl Levin, has been widely opposed by the financial industry and has not come up for a vote.

A more moderate, business-friendly compromise appears ready for passage in Congress. That bill focuses on disclosure, and imposes a 30-percent withholding tax on foreign banks that do not disclose U.S. accounts, among other measures.

INDIVIDUAL, CAPITAL GAINS AND DIVIDEND TAXES

The biggest pending issue before the Ways and Means Committee this year is the expiration of tax cuts enacted by then-President George W. Bush in 2001 and 2003.

Levin opposed the tax cuts in 2001 and 2003, and has voted against lowering the capital gains tax.

ESTATE TAX

Another big item on Congress' tax policy agenda is the estate tax, which expired at the end of last year due to a quirk in the law and the inability of lawmakers to agree on a policy.

Levin voted to extend the 2009 rates, which exempt the first $3.5 million and tax above that amount at 45 percent. The bill moved through the House last year but has stalled in the U.S. Senate.

Congress is under pressure to take up the issue because in addition to its expiration causing confusion this year, estate planners are at a loss for what the policy could be next year. Without action, the tax reverts to a $1 million exemption and a 55 percent tax rate above that amount in 2011.