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Buyout Firms Adopt Mantle of Champions of Common Folk (Update1) continued...


Frank and other proponents of raising taxes on the wealthiest Americans say adjusting the rate is a matter of fairness because some fund managers pay a lower tax rate on their incomes than their secretaries pay on their salaries.

“They are getting a tax reduction they don't deserve,” Frank said in an interview last week. “I don't think you should be getting a capital-gains tax for managing other people's money.”

Some of the most prominent Democratic voices on economic policy and in business also favor raising taxes on fund managers.

Robert Rubin, a former Treasury secretary who is now chairman of the executive committee of Citigroup Inc., said last month that that managers' share of profits probably should be taxed like normal salary.

Lawrence Summers, who succeeded Rubin as Treasury chief, said he is also concerned that some fund managers are abusing tax laws to convert income into capital gains.


Billionaire investor Warren Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., said June 26 that “If you make very large sums of money, you should not be taxed at a lower rate than the people who serve you at the deli.“

To counter this argument, anti-tax groups and their Republican allies are trying to present the measures aimed at the fund managers as a first step in repealing the 15 percent capital-gains rate.

“There are some in the country who don't believe there should be capital gains at 15 percent,” said Representative Tom Reynolds, a New York Republican. “That would be a huge mistake. Why should we fix something that isn't broken?”

The House proposal also takes aim at the real-estate industry, where companies are commonly organized as partnerships. Jeff DeBoer, president of the Washington-based Real Estate Roundtable, said higher taxes would lower property values, possibly resulting in lower revenue for local governments.

“This is not just about extremely wealthy individuals on Wall Street,” he said. “This is about every mom-and-pop real- estate ownership partnership in America.”

To contact the reporters on this story: Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net ; Jonathan D. Salant in Washington at jsalant@bloomberg.net .



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