Reuters Summit-Grassley eyes offshore shelters as bill stalls

(For other news from the Reuters Regulation Summit, click here)

By Emily Chasan

WASHINGTON, Feb 5 (Reuters) - U.S. Sen. Charles Grassley said on Tuesday a bill to boost taxes for publicly traded private equity firms is on hold, but he is determined to push through a legislation on offshore hedge fund tax shelters.

The influential Iowa Republican offered a proposal last year with Montana Democrat Max Baucus that publicly traded partnerships be taxed at the full corporate tax rate -- nearly double their current tax bill. The bill was met with stark opposition from the private equity industry, but now it is the economy that has stalled its progress, Grassley said.

"I think there's a caveat now that I wouldn't have talked about six months ago," Grassley said at the Reuters Regulation Summit in Washington D.C.

"(Given) how the economy has deteriorated, right now maybe we don't want to make Wall Street more nervous."

Regardless of the economy though, Grassley said the private equity industry had waged a fierce lobbying battle that hurt the bill's chances.

"The lobbying effort killed it. They've been very successful," Grassley said, adding that he has not closed the door on reviewing the bill again in the future.

However, Grassley does believe a loophole allowing some highly paid executives who operate offshore investment funds to defer unlimited amounts of pay should be closed.

Sen. John Kerry and Rep. Rahm Emanuel proposed legislation in October that would make taxable any pay that is deferred above 401(k) and IRA limits that comes from a foreign corporation and that does not depend on future job performance.

"That's closing a loophole, that's not raising taxes," said Grassley, who is the ranking Republican on the Senate Finance Committee.

In "thinking up these big tax loopholes, somebody's looking at the tax code and saying, 'Well, you can go offshore here and not pay your taxes,'" Grassley said. "It wasn't anticipated when the bill was written."

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Emily Chasan, editing by Richard Chang