Sen. Obama hits lobbyists over private equity tax issue

By Kevin Drawbaugh

WASHINGTON, Oct 9 (Reuters) - Sen. Barack Obama criticized the power of business lobbyists in Washington on Tuesday as support in Congress waned for a tax increase this year on the profits of top private equity and hedge fund managers.

Amid heavy lobbying by some of Wall Street's richest and smartest players, lawmakers and their aides for weeks have downplayed chances of Congress moving soon to pass bills that would raise taxes on so-called "carried interest" profits.

A key source of huge fortunes amassed in recent years by top private equity and hedge fund managers, carried interest profits are taxed at the 15-percent capital-gains rate instead of the 35-percent rate most Americans pay on ordinary income.

A handful of bills filed earlier this year in the Senate and the House of Representatives would change that. But momentum has faded in the face of opposition from an army of lobbyists hired by the wealthy financiers.

Obama, an Illinois Democrat and presidential candidate, derided the influence of lobbyists on Capitol Hill.

"If there was ever a doubt that Washington lobbyists don't actually represent real Americans, it's the fact that they stopped leaders of both parties from requiring elite investment firms to pay their fair share of taxes," he said in a statement.

Obama said that if elected president, he would "close tax loopholes for big corporations, provide 90 percent of working Americans with a tax cut, and pass the strongest lobbying reform in history."

Critics of the current tax treatment of carried interest call it an unfair loophole, while the industry says it is an appropriate approach to profits made by risk-taking managers.

A spokesman for Senate Majority Leader Harry Reid, a Nevada Democrat, on Tuesday reinforced growing doubts about the 2007 prospects for a carried interest tax increase.

"Given the difficulty in getting any legislation through the Senate and the little time left this year for moving other issues important to the American public, it is unclear whether there is sufficient time to address the appropriate tax treatment of private equity firms," spokesman Jim Manley said.

A campaign finance and lobbying watchdog group reported last month that private equity firms and hedge funds were substantially boosting their lobbying expenditures.

The Center for Responsive Politics said on Sept. 13 that the nation's largest contract for lobbying in the first half of 2007 was a $3.7 million agreement between Blackstone Group LP (BX.N), a leading private equity firm that has gone public, and Ogilvy Government Relations, a large lobbying group.

Data from the nonprofit, nonpartisan center in July also showed that political campaign donations by senior private equity firm partners were on a record-setting pace.

Louisiana Rep. Jim McCrery, top Republican on the tax-writing House Ways and Means Committee, said a month ago that a carried interest tax rise was unlikely in this Congress. Several Senate Democrats were openly skeptical about about such a tax increase at a hearing in late July.