Congress Looking to Pass Another $200 Billion “Jobs” Bill
From Bloomberg
(Bloomberg) — A jobs bill containing a proposal to more than double taxes on managers of buyout firms is running into resistance from House and Senate lawmakers worried that the legislation will widen the U.S. budget deficit.
Democratic leaders reached agreement yesterday on the tax increase, which would affect executives at firms such as KKR & Co. and Blackstone Group LP. It’s designed to defray the cost of legislation that would extend jobless benefits, reduce other business taxes and help local governments cut borrowing costs.
“We’ve got a huge debt building out there,” said Senate Budget Committee Chairman Kent Conrad, who estimated the bill would cost $195 billion. “When I look at a package of this size I think we have to be tough about narrowing it down.”
As lawmakers voiced concern about adding to the $1.5 trillion deficit, House leaders delayed until next week a vote on the bill that had been planned for today.
House Ways and Means Committee Chairman Sander Levin, a Michigan Democrat, provided a summary of the legislation.
Among other provisions, it would give $24 billion to states struggling to pay Medicaid bills, and delay for three and a half years cuts in Medicare fees to thousands of doctors. Lawyers, oil companies and businesses that use offshore tax havens would see their taxes go up.
Matter of ‘Equity’
Levin called the separate tax increase on executives at investment partnerships a matter of “equity,” adding, “When you put your money in, you pay capital gains. When you manage somebody else’s money, it’s ordinary income.”
Managers of private equity firms, venture capital firms and other investment pools are typically paid 2 percent of fund assets as an annual management fee and 20 percent of the profit earned for investors above certain levels. While the management fee is taxed as income, the share of profit, known as carried interest, is often taxed at the lower capital-gains rate when it involves long-term gains. That rate is currently 15 percent and is scheduled to rise to 20 percent in 2011.
The higher tax on carried interest would begin to take effect this year. Half the pay would be subject to ordinary tax rates as high as 35 percent, while the other 50 percent would continue to qualify for capital-gains rates, currently 15 percent.
In 2013, the ratio would increase so 75 percent of carried interest would be taxed at ordinary rates, while 25 percent would qualify for capital-gains treatment. The change is estimated to generate about $18.7 billion in revenue over the next decade.
The top ordinary income marginal tax rate is scheduled to rise to 39.6 percent next year.
Schwarzman Greets Senators
Stephen Schwarzman, chairman of New York-based Blackstone, was in Washington yesterday to meet with lawmakers. He stood outside the Senate chamber in the U.S. Capitol carrying a three- ring binder, and greeted senators on their way to a vote.
Schwarzman, David Rubenstein, co-founder of the Washington- based Carlyle Group, and Glenn Hutchins, co-founder of Menlo Park, California-based Silver Lake, were dispatched by the Private Equity Council, a Washington trade group, to argue against the tax increase, according to people familiar with the decision. Blackstone and Carlyle declined to comment. A Silver Lake spokeswoman didn’t return messages seeking comment.
The measure has passed the House three times in the past only to die in the Senate after lobbying by the industry.
Douglas Lowenstein, president of the Private Equity Council, called the proposed increase “punitive,” in a statement. Mark Heesen, president of the Arlington, Virginia- based National Venture Capital Association, said it “will more than double the taxes that long-term investors pay when they build successful companies and create jobs.”
Memorial Day Deadline
Democrats say they aim to send the legislation to President Barack Obama by May 31, Memorial Day. That goal is far from certain amid alarm over the cost and the need to pick up the support of at least one Republican in the Senate.
“I think we’ll have the votes,” House Speaker Nancy Pelosi said yesterday.
Pelosi doesn’t have the votes now because of cost concerns, said Representative Stephanie Herseth Sandlin, a South Dakota Democrat who co-chairs a coalition of fiscal conservatives known as the Blue Dogs.
Voters are “very skeptical about some of the decisions made in this Congress” so it’s hard for lawmakers to approve bills that show them “seemingly punting on decisions to cut spending,” she said.
The bill would also extend the Build America Bonds program through 2012 while gradually reducing subsidies offered through the initiative to 30 percent from 35 percent.
That program was created as part of Obama’s economic- stimulus package to help drive down the cost of borrowing for public works. It allows state and local governments to market their securities to pension funds and foreign investors, expanding their reach beyond the traditional buyers looking for income exempt from state or federal taxes.
–With assistance from Ryan Donmoyer and James Rowley in Washington and Jason Kelly in New York. Editors: Mark McQuillan, Robin Meszoly
To contact the reporters on this story: Brian Faler in Washington at bfaler@bloomberg.net; Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net
To contact the editor responsible for this story: Mark McQuillan at mmcquillan@bloomberg.net
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