New York's Schumer plans private equity tax bill

By John Poirier

WASHINGTON, Aug 15 (Reuters) - New York Democrat Charles Schumer is preparing Senate legislation that would apply higher income tax rates to partnerships in all U.S. industries, not just private equity, a spokesman said on Wednesday.

Congress is considering several proposals that would more than double the taxes paid by senior executives of private equity firms that buy and sell companies.

The executives typically take a 2 percent fee on such transactions and keep 20 percent of the profits from major transactions, in an arrangement known as carried interest.

One of the bills would require managers of private equity firms and hedge funds to pay the higher income tax rate on carried interest rate gains instead of the current low capital gains tax rate.

Another approach would raise taxes on managers of private equity and other investment firms that go public as publicly traded partnerships (PTPs), as Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz) did.

In either approach, the tax rate on PTPs or on carried interest would increase to as much as 35 percent, the top ordinary income tax rate paid by most Americans. Currently, the executives pay a capital gains tax rate of 15 percent.

"Senator Schumer is working on legislation to do exactly what he has said all along -- tax carried interest at ordinary income rates across all industries," spokesman Brian Fallon said.

"He prefers this approach because it is broader, fairer and will raise more revenue than targeting only publicly traded partnerships."