House OK's tax increase for fund managers
Bill would also give AMT relief to 25m households in '08
WASHINGTON - The House voted to boost taxes for executives of investment funds and many other kinds of partnerships to generate revenue to match money lost by preventing a $61.5 billion tax increase for 25 million American households this year.
The House voted 233 to 189 to send the bill to the Senate, where Republicans object to a provision that would more than double tax rates for certain partners of buyout, real estate, hedge fund, venture capital, and oil and gas firms. Republicans have vowed to use procedural techniques to block its passage there.
"Republicans believe that Congress should not raise taxes on one group of taxpayers in order to prevent a tax increase on another set of taxpayers," said Representative Jim McCrery of Louisiana, the ranking Republican on the House Ways and Means Committee.
The Bush administration expressed "strong opposition" to tax increases in the bill, which also would increase the top tax rate for most oil and gas companies to 35 percent from 32 percent.
The debate was a replay of last year when Democrats sought to block higher taxes on millions of Americans who would be affected by the alternative minimum tax. The tax was enacted almost 40 years ago to prevent wealthy Americans from avoiding federal income tax through excessive deductions, credits, and exemptions. The AMT was never indexed for inflation and has applied to a growing number of Americans.
Democrats wanted to balance the lost revenue with permanent tax increases to keep the budget balanced. Republicans forced Congress in December to adopt the AMT relief for 2007 without any budget offsets.
The House measure would force fund executives to pay ordinary tax rates as high as 35 percent on their compensatory share of profits known as "carried interest" instead of capital gains rates as low as 15 percent.
Democrats such as Representative Charles Rangel of New York said the provision would restore fairness in the tax code because most other workers already pay rates as high as 35 percent on their labor.
Pairing the provision with the AMT relief would prevent future generations from paying interest on debt incurred if the AMT relief added to budget deficits, Democrats said.
