Obama 2011 Budget Hedge Funds

Obama's 2011 Budget Proposal Raises Taxes on Hedge Funds

President Obama released his budget proposal for 2011 which would raise taxes on private equity firms and hedge funds. As expected, the president is urging Congress to eliminate the carried interest tax loophole and tax performance fee income as ordinary income. This change would be a significant blow to funds and managers who rely on this performance fee. Congress still has to approve the budget and it will likely be changed from Obama's original proposal.

The president’s plan would eliminate the so-called carried-interest loophole, which taxes fee income earned by alternative investments professionals as capital gains, rather than ordinary income. The Obama plan would tax performance fee income as ordinary income, nearly tripling the amount some managers will pay. The provision would add $24 billion to the government’s coffers over the next 10 years.

The fiscal year 2011 budget also includes several other tax provisions likely to hit the alternative investments industry hard. Obama has proposed allowing the tax cuts on wealthy Americans pushed through by President George W. Bush to expire, increasing the top income-tax bracket to 39.6%. That would net nearly $1 trillion in new revenues for the government as it struggles to both prop up the U.S.’s ailing economy and cut its ballooning deficit.

Obama is also seeking an additional $122 billion from banks and multinational corporations, and $37 billion more from oil and gas companies.

Related to: Obama 2011 Budget Hedge Fund

Tags: taxes, carried interest, fund management, tax treatment, capital gains, capital gains tax, carried interest, obama budget