Obama, Edwards hit lobbyists on private equity tax

By Kevin Drawbaugh

WASHINGTON (Reuters) - Democratic presidential contenders Barack Obama and John Edwards blasted the power of business lobbyists in Washington on Tuesday as support in Congress waned for a tax increase this year on the profits of wealthy private equity and hedge fund managers.

Amid heavy lobbying against a tax hike that would hit some of Wall Street's savviest players, lawmakers and aides for weeks have downplayed chances of Congress moving soon to pass bills to raise taxes on so-called "carried interest" profits.

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

A handful of bills filed earlier this year in the U.S. 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 deep-pocketed financiers.

Sen. Obama of Illinois derided the powerful influence of lobbyists on Capitol Hill in a statement.

"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.

As president, he said, 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."

Edwards, a former North Carolina senator, said lobbyists wield "terrible power ... to stop real reform,"

"Incredibly, for an investment of about $6 million in lobbying fees -- and another $6 million in political contributions -- these elite Wall Street traders preserved a $6 billion tax break for themselves," Edward said in a statement.

"America needs a leader who will stand up to these powerful interests. ... We can't just trade corporate Republicans for corporate Democrats. We have to end the rigged system in Washington," he said.

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 September 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, a leading private equity firm that has gone public, and Ogilvy Government Relations, a large lobbying group.