Revised US House AMT fix keeps hedge fund tax rise

WASHINGTON Dec 11 (Reuters) - Democratic tax writers in the U.S. House of Representatives still want to crack down on offshore shelters for hedge fund managers' pay, but on Tuesday they backed away from raising taxes on the carried interest gains of private equity firm managers.

In a win for lobbyists hired by rich private equity chiefs, House Ways and Means Committee Chairman Charles Rangel released a new, carried interest-free version of a bill that is aimed at saving millions more Americans from having to pay the creeping alternative minimum tax (AMT) this year.

The one-year AMT "patch" will be very costly and the House -- hewing closely to pay-as-you-go budget rules adopted by the Democrats when they took control of Congress -- is insisting that the patch be paid for by raising revenues elsewhere.

When Congress first started debating the AMT fix, Rangel proposed raising some money for it by forcing private equity managers to pay the income tax rate of up to 35 percent on carried interest gains they make through buying and selling companies. They now pay the 15 percent capital gains tax rate.

He also proposed raising more AMT revenues through closing a tax loophole that allows hedge fund managers to defer taxes on their pay by sheltering it in offshore tax havens.

The Senate -- more closely divided between the parties and under heavy lobbying pressure -- refused to accept both of the House "pay-for" measures, along with many other provisions, and on Dec. 6 approved an AMT patch with no revenue raisers.

"Senate Republicans have defined themselves as an obstacle to providing responsible AMT relief, suggesting that provisions in previous legislation were too controversial to pass Congress this year," said Rangel in a statement.

As a result, he said, the House's new bill "removes those controversial pay-fors, and incorporates provisions that have been suggested to receive broad support in the Congress."

But the new House bill retains the provision to close the hedge fund loophole on offshore compensation shelters, as well as several other tax changes that would affect business.

Rangel, a New York Democrat, added: "The House will consider and pass this legislation ... giving the Senate one more chance to do the right thing and pass this critical tax relief without adding to the deficit."

He said the House bill would ensure that no additional taxpayers pay the AMT this year. The tax was enacted in 1969 to ensure that millionaires had to pay some taxes, but it was not indexed for inflation and now threatens to ensnare millions of middle-income families.

Lawmakers are racing against the clock to extend AMT relief before they recess by the end of the year. (Editing by Tim Dobbyn)