VentureBeat

Senate Majority Leader Harry M. Reid (D-Nev.) has reportedly told venture capital and private equity firms that the carried interest tax-hike bill won’t get get through the Senate this year.

Venture capitalists and private equity mangers deserve to be paying the higher rates, because they’re not taking any risks with the investments they’re making. The tax they’re paying now is the very low capital gains rate, and is paid on profits they’re making from investing other peoples’ money. Capital gains was designed only to encourage risk taking.

The report, carried in the Washington Post, suggests the fight by Democratic lawmakers, including some presidential candidates, for the higher tax has come to an end, at least for this year. These advocates wanted to raise the low 15 percent capital gains tax most VCs and private equity managers pay on their earnings, to the full income tax of 35 percent.

However, in the UK, the government has decided otherwise, and is unveiling new taxes on the industry.

Millions of dollars were spent by lobbyists to attack the bill. However, Reid implied the reason for the bill no passing has to do with the jammed Senate schedule. But tax hikes are difficult in presidential election years, so it’s not clear whether the bill will be back with more support next year.
Notably, the Post says the lobby attack on the proposal generated business for more than 20 lobbying firms, including the capital’s two largest, Patton Boggs and Akin Gump Strauss Hauer & Feld. A single private-equity firm, Blackstone Group, paid Ogilvy Government Relations $3.74 million this year, one of the largest recorded fees to any lobbying firm during a six-month period. According to the Post:

Some of the most prominent executives in the industry have made the rounds of senior lawmakers in recent months. Among those seen on Capitol Hill were former commerce secretary Peter G. Peterson of Blackstone Group and David M. Rubenstein of Carlyle Group. The financiers have benefited from cooperation with the real estate industry and the broad business groups like the U.S. Chamber of Commerce. Trade groups such as the Real Estate Roundtable have sent letters to lawmakers and testified before congressional committees against the tax increase because it would also impact the managing partners of their developers.