Buffett backs higher private equity taxes

Warren Buffett on Wednesday threw his support behind a proposal to increase tax on private equity and hedge fund managers as part of a broad appeal to US law­makers to address widening income inequality.

The statement by Berkshire Hathaway’s chief executive stood in contrast to a lobbying campaign by business groups to stop legislators in the Senate from adopting a proposal that would more than double the tax rate for executives at buy-out groups such as Carlyle, as well as property partnerships and venture capital firms.

The House of Representatives last week passed a proposal that would increase tax paid on carried interest – the compensation paid to executives in partnerships, currently at the 15 per cent capital gains rate – to up to 35 per cent. The measure, part of a package to fund middle-class tax relief, is not expected to pass in the Senate this year. That has not stopped intense lobbying by business groups, however, who fear the issue may gain momentum ahead of next year’s presidential election.

At the heart of the debate is the question of whether investment managers’ stakes in partnerships’ earnings should be treated as ordinary income or as gains on investments. Mr Buffett said he had benefited from carried interest when he ran an investment partnership.

“I was managing money for other people...believe me, it’s an occupation. I believe you should tax people on carried interest,” he said.

The world’s second richest man, whose fortune is estimated at $52bn (€35.5bn, £25.3bn), has been an outspoken critic of rising income inequalities. His remarks on carried interest were made at a Senate finance committee hearing at which he said Washington should give low-income families a $1,000 tax credit instead of repealing the federal estate inheritance tax.

In June, the “Sage of Omaha” told investment bankers and private equity moguls gathered in New York to raise money for Hillary Clinton that the US tax system was unfair because it taxes rich people less than their secretaries or cleaners.

“The 400 of us [here] pay a lower part of our income in taxes than our receptionists do – or our cleaning ladies, for that matter,” he told his audience, who paid $4,600 a head to attend. “If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”