A bill to raise taxes on hedge-funds and private-equity executives, designed to prevent an increase on middle-income families this year, was approved by the U.S. House of Representatives in the face of an almost certain veto by President George W. Bush.

The House voted 216-193 to approve the $78.3 billion measure, which spares 21 million households from a surprise tax increase this year because of the alternative minimum tax. It also renews dozens of expiring tax breaks for businesses and contains relief for homeowners facing foreclosure. Eight Democrats opposed the measure; no Republican voted for it.
The bill faces tougher prospects in the Senate, where Finance Committee Chairman Max Baucus said it would be retooled to overcome the opposition of Republicans who want to alleviate the minimum tax without new revenue. Its chances are further diminished by the Bush administration's threat Thursday to veto any measure that is funded by increasing other taxes.
”House Speaker Nancy Pelosi of California said passage of the bill represented a ``vote on values for our country” that ``planted a flag of fiscal responsibility.'' She said House Democrats ``have an understanding with the Senate that for this legislation to go forward it must be paid for.”
The author of the House bill, Ways and Means Committee Chairman Charles Rangel, cast the debate as a fiscally responsible choice to reduce taxes on middle-class households while ending what he said was an inequity that allows some of the wealthiest Americans to pay taxes at a lower rate than wage-earners.
“This is not a tax increase, this is a closing of a loophole and you should be proud to participate in that,” said Rangel, a New York Democrat.
The vote was a defeat for hedge funds and private-equity firms, which have spent $6.1 million this year lobbying against a tax increase. The bill would more than double the tax rate on so- called carried interest, the compensation that executives at buyout and venture-capital firms, as well as real estate partnerships, receive for investment services. The House measure also would require hedge-fund managers to pay tax on income they defer in offshore accounts. The two provisions would generate $49.5 billion over the next decade.
The Private Equity Council, a Washington trade group created in December by 11 buyout firms including Blackstone Group LP, KKR & Co. LP, Carlyle Group, and Apollo Management LP, said it would continue to fight the bill in the Senate, where it may not be taken up before next month.
The group's president, Douglas Lowenstein, said in a statement that the House measure's ‘narrow’ margin of victory ``demonstrates widespread concern about this new investment tax,'' which ``could dampen economic growth at a time of an unsettled economy and gyrating financial markets.''
The alternative minimum tax was created in 1969 to deny common deductions for 155 millionaires found to have escaped taxation. It was never indexed for inflation and has increasingly affected more people as incomes rise. If left unchecked this year, the tax will ensnare people with incomes as low as $50,000.
(Source: Bloomberg)