Bill would hike taxes on some equity firms

Washinton -- Two U.S. senators have introduced a bill that would raise taxes on publicly traded private equity firms and hedge funds.

Legislation introduced by Sen. Max Baucus, D-Mont., Senate Finance Committee chairman, and Sen. Charles E. Grassley, R-Iowa, the committee's ranking GOP member, would tax as corporations publicly traded partnerships that derive most of their income by managing other people's assets, such as the Blackstone Group, which plans to go public this year, The New York Times reported Friday.

Nearly all private equity firms and hedge funds are structured as partnerships, with managers earning a percentage from their managed assets, taxed at ordinary income rates. Managers receive a larger percentage of the profits, which are taxed at the capital gains rate.

If the legislation is adopted, publicly traded private equity firms and hedge funds would face an additional corporate tax, bringing the effective tax rate to nearly 45 percent, the Times reported.

"It's unfair to allow a publicly traded company to act like a corporation but not pay corporate tax, contrary to the intent of the tax code," Grassley said. "We don't have a workable tax code if we don't have structural integrity."

Copyright 2007 by United Press International.