The preferential tax rates that private-equity managers pay on some profits survived Congress’s Jan. 1 budget deal, but that victory may not last, Bloomberg News reported today. For private-equity managers, changes in the tax treatment of so-called carried interest may affect them more than tax increases now on the books. Congress faces a series of deadlines in the next few months over spending cuts, the debt ceiling and the annual budget. Democrats including President Barack Obama want to raise more revenue, and carried interest is an obvious candidate. “There continues to be no rationale whatsoever for people to pay at a vastly lower tax rate when they are managing other people’s money,” Rep. Sander Levin (D-Mich.) said. “This is an issue of fairness that we should address as we seek a balanced approach to deficit reduction that involves both additional revenues and spending cuts.” The share of profits in buyout deals, known as carried interest, is often taxed as capital gains, which receive preferential rates under the tax code compared to levies on wages. In the budget deal, lawmakers increased the top rate on long-term capital gains to 20 percent from 15 percent and the maximum rate on ordinary income to 39.6 percent from 35 percent.
