Buyout Firms, Hedge Funds Look to Senate, Bush to Beat Tax Rise

Private-equity firms and hedge funds may lose their first legislative skirmish when the U.S. House votes today on a proposal to raise their taxes. They will find friendlier territory ahead in the Senate and the White House.

The House is poised to adopt a $78.3 billion measure that would alleviate the impact of the alternative minimum tax this year. The measure offsets lost revenue by more than doubling the tax rate on so-called carried interest, the payment that executives at buyout and venture-capital firms, and real-estate and oil and gas partnerships, receive for managing investments.

The tax increase is less likely to pass the Senate, where Republicans have vowed to block it, and President George W. Bush has threatened a veto if it does get through.

``They lost round 1 in the House,'' said Sam Geduldig, a Republican lobbyist at Washington-based Clark Lytle & Geduldig, which represents financial-services companies such as Fidelity Investments. ``Round 2 with the Senate is evenly divided and it looks much more favorable with the president and the veto.''

The debate has exposed a rift among Democrats over whether to tap some of the party's wealthiest donors to help pay for tax relief for millions of middle-income families.

Private-equity firms and hedge funds have spent $6.1 million this year lobbying against the proposed tax increases. The Democratic Senatorial Campaign Committee, which is headed by New York Democrat Charles Schumer, received $695,500 from employees of those industries in September, the most since June, when the Senate Democrats' fund-raising arm pulled in $779,100. This compares with $110,500 in industry money for the Republican Senate fundraising committee in September, up from $60,000 in June, an analysis of Federal Election Commission records shows.
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