(Bloomberg News) Chris Van Hollen, the top Democrat on the House Budget Committee, said Congress should eliminate a tax break for private-equity and hedge-fund executives to pay for extending a payroll tax cut for workers.
"It's an inequity in the tax code, and it needs to be fixed," Van Hollen, a Maryland Congressman, said this past weekend on Bloomberg Television's "Political Capital with Al Hunt."
"If you look at a lot of the hedge fund activities, these are people who are not putting their own capital at risk," he said. "They are getting a special deal that is not available to other people in the economy."
Tax fairness has become an issue in the 2012 presidential campaign. Mitt Romney, Republican front-runner and co-founder of Boston private-equity firm Bain Capital LLC, probably has benefited from a break that allows private-equity executives to receive much of their compensation as carried interest--treating what would be ordinary income for other service providers as capital gains taxed at 15 percent. Ordinary income currently is taxed at rates as high as 35 percent.
Romney, reporting a net worth of between $190 million and $250 million in an August disclosure form filed at the Federal Election Commission, has said his effective tax rate is probably about 15 percent because his income comes overwhelmingly from past investments. In debates last week, he said he probably will release some personal income tax returns in April.
Ending the tax break would affect general partners in private equity and hedge funds, who may or may not contribute capital to the firm and get most of their earnings as a share of the profits from the assets under management. It would also affect profits-based compensation of real estate investors and venture capitalists.