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GRASSLEY V. PRIVATE EQUITY

August 10, 2007

Iowa's own Chuck Grassley is looking to private equity funds to fix the AMT mess. It appears that he wants to make public investment partnerships taxable as corporations. It also appears he wants to tax "carried interests" taxable as ordinary income. From the New York Post:

Iowa Senator Charles Grassley said he intends to link his proposal to boost taxes on publicly traded buyout firms to a fix of the alternative minimum tax, a pairing that may make it harder for opponents of the measure to vote against it.

"This is going to come when we deal with the alternative minimum tax," Grassley, a Republican, said in an interview yesterday. He said the bill deals with "issues of equity and fairness."

By going after carried interests, Senator Grassley and other congresscritters divert attention from their own negligence in managing the AMT. Their long-term budget projections assume AMT revenue that they never expect to collect. Increasing taxes on private equity can at best raise only a fraction of the trillion dollars needed to permanently the alternative minimum tax. By itself the annual "patch" to punt the projected expansion of AMT to 23 million more households back another year is now costing $45 billion annually.

If they really want to deal with the AMT, the only way to do so is as part of a broader reform that repeals tax breaks in exchange for lower rates. As it is so much easier to come out against hedge fund millionaires so it looks like you're doing something, that's the course we can expect Congress to take.

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