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(Washington D.C.)- The House of Representatives passed the Tax Extenders Act of 2009 today to provide individuals and businesses with approximately $31 billion in tax relief. The legislation extends for one year more than forty provisions that are scheduled to expire at the end of 2009. This includes $5 billion in individual tax relief, $17 billion in business tax relief, and $7 billion of tax provisions that encourage charitable contributions, provide community development incentives, provide tax relief in the event of disasters, and support the deployment of alternative vehicles and alternative fuels. The Tax Extenders Act of 2009 passed by a vote of 241 to 181.
“Today’s legislation keeps in place vital tax provisions that promote research and development, provide an incentive to purchase heavy duty hybrid vehicles, and encourage business food donations to pantries, among a variety of other things,” said Rep. Levin. “The legislation is also essential to give families and businesses more certainty for the year ahead.”
The legislation does not add to the deficit and offsets the tax relief by putting a stop to billions of dollars worth of tax abuse through overseas tax havens and ending the special preferential tax treatment for carried interest given to fund managers as compensation. The latter proposal, which was authored by Rep. Levin, ends the practice by which the managers of private investment partnerships are able to receive compensation for their services at the much lower capital gains tax rate rather that the ordinary income tax rate by virtue of their fund’s partnership structure.
“This is a basic issue of fairness,” said Rep. Levin. “Fund managers are receiving compensation for managing their investors’ money. They should not pay the 15% capital gains rate on their compensation when millions of other hard-working Americans, many of whose income is performance-based, pay ordinary rates of up to 35%.”
The carried interest provision clarifies that any income received from a partnership, capital or otherwise, in compensation for services provided by the employee is subject to ordinary tax rates. As a result, the managers of investment partnerships who receive a carried interest as compensation will pay regular income tax rates rather than capital gains rates on that compensation. The capital gains rate will continue to apply to the extent that the managers’ income represents a reasonable return on capital they have actually invested themselves in the partnership.
For a fact sheet on the tax extender provisions click here.
For a fact sheet on Rep. Levin’s carried interest provision click here.
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