According to Forbes in 2010 Steve Schwarzman, who runs the private equity and hedge fund behemoth the Blackstone Group, compared efforts to raise taxes on private equity and hedge fund managers with Hitler’s invasion of Poland. Schwarzman ended up apologizing for the inappropriate analogy, but on the morning after the House of Representatives voted for a Senate-passed deal to avert the fiscal cliff, it increasingly looks like hedge fund and private equity managers have won their war in Washington.
The bottom line is that hedge fund and private equity moguls will continue to be taxed relatively lightly after the new fiscal cliff legislation. Carried interest will continue to be taxed as long-term capital gains for hedge fund and private equity managers. The top rate for capital gains has increased to 20% from 15%, but most of the carried-interest benefit has been retained. That means that the rich performance fees hedge fund and private equity managers charge their investors—usually 20% of their investment profits—will continue to get favorable tax treatment….