Rangel tries to tax hedge pay - again

Proposed legislation hammering the deferred compensation of many hedge fund managers is expected to be resurrected on Capitol Hill as soon as this week — and this time around some industry lobbyists are betting the measure will become law, according to Crain's Pensions & Investments.

The proposal, championed by House Ways and Means Committee Chairman Charles Rangel, D-N.Y., would shut a loophole allowing some hedge fund managers to defer taxes on billions of dollars of their compensation from offshore funds.

The provision would essentially require fund managers to pay taxes immediately on income that is now tax-deferred.

Mr. Rangel attempted to win approval of a similar provision late last year by including it in a major bill to extend relief from the alternative minimum tax for many U.S. citizens. But the Senate refused to accept Mr. Rangel's version of the AMT relief bill.

Now, however, lobbyists said Mr. Rangel is planning to introduce the provision again — this time as part of a package that would extend several popular tax programs, including one that allows U.S. companies to take a tax credit for research and development.

The Ways and Means Committee plans to vote on the legislative package this week, said Matthew Beck, a committee spokesman. Mr. Beck said details of the provisions that would be included in the bill were still under consideration.

But key lobbyists said the deferred compensation provision — which the House Ways and Means Committee has said would add $23.7 billion to the U.S. Treasury over 10 years — is likely to be enacted because it's extremely difficult to argue publicly in favor of a special tax break that favors a wealthy elite.

“It (the loophole) is perceived as a bad thing,” said Bill Sweetnam, a partner at Groom Law Group, Washington. “There's a really high likelihood that this will go through.”

The hedge fund industry's Managed Funds Association, Washington, has vowed to fight the tax proposal.

“The MFA has opposed previous efforts to halt the use of deferred compensation in offshore funds and we will continue to oppose such efforts this year,” Richard H. Baker, MFA president and chief executive officer, said in an e-mail response to questions.

“Hedge funds have been the most reliable source of market liquidity in the midst of the current credit and liquidity crisis,” Mr. Baker added.

“The offshore funds are active providers of liquidity for U.S. and global investments, including pension fund investments. This tax proposal, by raising over $20 billion of revenue from the hedge fund community at this turbulent time, is inconsistent with the continued need for hedge funds to invest in the marketplace.”

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