US Senate Dems revive private equity tax proposal

* Provision has passed U.S. House several times

* Latest bid by Senate to raise fund manager taxes

By Kim Dixon

WASHINGTON, Sept 16 (Reuters) - U.S. Senate Democrats on Thursday revived an effort to impose steeper taxes on private equity and other investment fund managers.

The legislation would raise about $14 billion over a decade by taxing most of a fund manager's income at the higher ordinary income rates, now 35 percent, rather than the current 15 percent capital gains tax rate.

Democratic lawmakers have been trying to hike taxes on private equity fund, real estate fund and investment fund managers for several years, noting that they are taxed for most of their income at a lower rate than their secretaries.

The funds contend higher taxes will cut investment activity and harm the economy.

The House of Representatives has passed bills with higher taxes several times, but the Senate has failed to pass similar measures.

The provision, known as "carried interest," is part of far-reaching tax legislation to help fund a broad set of tax breaks that benefits companies and individuals, including a popular research and development tax credit for businesses.

The measure's fate is unclear. Many believe such a tax will eventually be passed as lawmakers run out of revenue raisers amid a tight budget environment.

The Senate Democrats' plan in general subjects 75 percent of a manager's income to ordinary income rates, rather than capital gains rates.

The funds subject to ordinary income tax rates drops to 50 percent for assets held longer than five years. (Reporting by Kim Dixon)