Folks in the private equity industry felt a jolt Tuesday when House Ways and Means Chairman Charles B. Rangel (D-N.Y.) announced his plans to raise taxes on investment income those money managers take home each year.
Rangel included a nearly $31 billion tax increase on these investment managers in his broader measure to save middle-income families from the alternative minimum tax for another year. His proposal would force these highly paid money managers to record much of their revenue as labor - instead of the return on an investment - requiring them to pay significantly higher tax rates on that income each year.
Another extension of the AMT would cost the federal government an estimated $61.5 billion over the next 10 years, so the Ways and Means chairman included this money to offset those costs in his broader package.
His proposal also sent a stark message to the Senate as that chamber considers an alternative measure to suspend the AMT: The Ways and Means chairman plans to pay for any non-essential tax cuts that could contribute to the deficit.
This should make fiscally conservative Democrats happy, even though most folks already acknowledge that many of these tax increases will be shed from any final package. For example, last year, Senate Majority Leader Harry Reid (D-Nev.) suggested Congress would not approve a tax on these money managers before the next election, allowing many well-heeled folks on Wall Street to breathe a sigh of relief.
Other revenue generators in that broader proposal include a measure to rollback tax breaks on domestic oil producers, a prohbition on certain offshore tax shelters and a requirement for any company that processes credit or debit card payments to file revenue reports with the Internal Revenue Service. This latter requirement would force many businesses to report their earnings more accurately to the IRS each year, resulting in an estimated $9.8 billion in tax revenue over the next 10 years.
But of course, none of this is a sure thing.