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Power Lunch

Hedge Fund Tax Hike? Senator Grassley Undecided

U.S. Sen. Charles Grassley, R-Iowa and ranking Republican member on the Senate Finance Committee, told CNBC’s “Power Lunch” that he hasn’t yet decided if raising taxes on hedge funds is a good idea.

“What we have to study and make a determination about is the carried interest income –- is that money that has been worked for and earned?” Grassley asked Wednesday. “If it is, it’s taxed at the earned income tax rate. If it’s capital gains, it’s taxed at the capital gains rate … We’re not talking about a change in the principles of earned income or capital gains.”

Grassley said he didn’t know how much revenue the new tax might raise. That determination will be made the Joint Committee on Taxation.

Congress Eyes Hedge Fund Risks

“This is not an issue about raising taxes,” Grassley said. “I support the 15% capital gains tax rate (and) fought to get it into the law the way it is. I want to maintain that. This is a question of whether it’s earned income or capital gains.”

The Senate Tax Committee is holding its first hearing on taxing “carried interest,” or the profits earned by private equity and hedge fund mangers. The money is typically taxed at the 15% capital gains rate because the law now views such profits as investment income rather than earned wages. A bill in the House would declare such profits ordinary income and tax them at rates as high as 35%. The Senate may offer a similar measure.