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Rep. Levin Defends Proposed Tax on Private Equity

Rep. Sander Levin told CNBC’s “Power Lunch” that his new tax bill seeks to create fairness and is not aimed at private-equity companies.

"This is part of our effort to make sure that there's equity in our tax structure," the Michigan Democrat said Friday.

Sander Levine
Sander Levine

The bill states that any income received from a partnership in compensation for services will be considered ordinary income for tax purposes. This means that managers of investment partnerships who receive carried interest as compensation would pay regular income tax rates rather than capital gains rates on the compensation, boosting the tax bite in most cases.

However, the bill states that the capital gains rate will continue to apply to the extent that the managers income represents a “reasonable” return on capital they have invested in the partnership.

"I don't think we want economic growth on the basis of unfair taxes,” Levin said. “How do I go to Michigan and someone who is providing services and they're paying ordinary income tax and then they say to me that someone who is in a management company is being paid not for cash they put into the company but because of their services and they're being charged half the tax (rate). How do you give that answer? I want to foster economic growth. It needs to be done within a structure of fairness and that's what this is all about. There's no pile on.”

Levin said he will work on the bill with Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee.

“We're going to take, under Mr. Rangel's leadership, each and every one of these issues, including AMT, and make sure we solve it,” Levin said. “Otherwise, you're going to have 25 - 30 million people, most of them middle income families, who are going to pay more than some people who are perhaps wealthier (and) are going to be taxed at a much lower rate. You can't explain that to people in this country."

Joining Levin and Rangel as co-sponsors of the bill are Reps. Barney Frank, Pete Stark, Jim McDermott, John Lewis, Richard Neal, Earl Pomeroy, Stephanie Tubbs Jones, John Larson, Earl Blumenauer, Ron Kind and Bill Pascrell.

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