Mar 8, 2007 02:51 PM
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San Francisco, 6:17 PM
Tue Feb 9
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Maybe I'm reading this wrong. But it looks awfully like a proposal before Congress would roughly double tax bills for partners at Silicon Valley's venture capital firms. To find out how, read on.
This isn't just some random brainfart; the proponent is Charles Grassley, ranking Republican on the Senate Finance Committee. And this isn't just any time: the new Democratic majority is looking to raise money for middle-class tax relief.
Grassley's seemingly technical change — which could be presented as the closing of a tax loophole — is to treat partners' gains from "carried interest" as ordinary income rather than, as now, capital gains. What's the big deal? Successful VCs make most of their money from this carried interest, usually a 20% cut of the fund's gains. The change would push the tax rate on VC windfalls from 15% to 35%.
To be sure, the proposal will probably get watered down. As much as anything else, one Senator from Connecticut, capital of the private equity industry, heads up the Senate's Banking Committee; another, Joe Liebermann, holds the balance of power in the chamber. But the colossal accumulation of wealth in private equity, and the excess of many who share in it, makes the industry a tempting political target.
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