Dems express reservations with bill on private equity

A tax adviser to Rep. Joseph Crowley (D-N.Y.) Tuesday suggested that Rep. Charles Rangel, a fellow New York Democrat and the chairman of the Ways and Means Committee, could be persuaded to withdraw his support for a proposal to raise taxes on the hedge fund and private equity industries and hinted at brewing opposition to the measure among some Ways and Means Democrats.

The staffer, Kevin Casey, told a large off-the-record gathering of lobbyists working to defeat the legislation that Crowley had shared with Rangel his concern that the tax change could harm New Yorkers and that Rangel had listened sympathetically, according to several lobbyists present at the meeting.

{mosads}Casey added that other Ways and Means Democrats also had reservations about the bill, but he stopped short of naming the lawmakers.

“He tried to give the impression that Rangel was agreeable to not moving the bill” and that there was a “[bipartisan] coalition of members that could potentially be built” to kill the legislation, one lobbyist present at the meeting said.

At one point, Casey conveyed his sense that the lobbying community was “more worked up than it should be” over the issue, according to another lobbyist.

Crowley, who was not at the meeting, strongly disputed that his staffer had attempted to characterized Rangel’s stance on the legislation. “Kevin Casey does not speak for Charlie Rangel. Charlie Rangel speaks for Charlie Rangel.”

He added, “It’s my sense that the committee is looking at the issue of fairness in taxation. I welcome it, I want to examine it, and I’m looking forward to the hearings.”

The remarks, which were made at the U.S. Chamber of Commerce, could signal the first stirrings of Democratic opposition to the legislation, which set off a lobbying storm after Rep. Sandy Levin (D-Mich.) introduced it last month. The proposal would raise taxes on the so-called “carried interest” used to compensate hedge fund and private equity managers from the capital gains rate of 15 percent to ordinary income rates of as much as 35 percent.

 Several lobbyists present at the meeting said they were encouraged by Casey’s remarks, but emphasized that they took them with “a grain of salt” because of evidence that Rangel and other key Democrats strongly favor the legislation. The Ways and Means chairman promptly signed on to the bill and announced that he would hold hearings to examine the issue of tax fairness in July.

Asked for comment, a spokesman for Rangel, Jioni Palmer, said, “We don’t comment on hearsay — second-, third- or fourth-party hearsay. As to the broader issue of carried interest and private equity, the committee leadership remains committed to examining these issues and holding hearings looking at tax fairness in the near future.”

The meeting was attended by dozens of lobbyists, including representatives from the Managed Funds Association, the Financial Services Roundtable, the Financial Services Forum, the Real Estate Roundtable and many multi-client contract lobbyists.

Casey spoke at length, stressing to his audience the importance of trumpeting the good deeds of the private equity industry to persuade other lawmakers to oppose the bill. He cited the industry’s role in revitalizing Chicago, funding affordable housing projects in New York and buying DaimlerChrysler’s beleaguered Chrysler unit.

Casey repeatedly referred to the “bipartisan” opposition that could be galvanized to sink the proposal, although he acknowledged that many Democrats regarded the legislation as a “dream pay-for” for legislation to provide relief from the Alternative Minimum Tax.

Yesterday, the carried interest legislation was the main topic of discussion at the weekly meeting of the moderate New Democrat Coalition, of which Crowley is a member.

Rep. Artur Davis (Ala.), a New Democrat and Ways and Means member, insisted that he had not made up his mind on the legislation but said there was interest among some lawmakers in a “middle-ground approach.”

“I think there’s an interest in seeing whether it’s feasible to get an approach that doesn’t paint too broadly,” he said. He added that such a solution might, for example, target a narrower swath of investment partnerships that use carried interest.

Rep. Eric Cantor (Va.), a member of the Republican leadership who is leading the charge against the legislation, has reached out to several New Democrats, a Cantor spokeswoman, Rachel Bauer, said.

“If the Democrats who say they want to help stop the repeal of the capital gains rate reduction on partnerships will work in a bipartisan fashion, then we can stop this tax hike on job creation and innovation,” Bauer said. She declined to say whether Cantor had discussed the issue with Crowley.

Aside from Levin and Rangel, 10 other Ways and Means Democrats are cosponsors of the bill. Of the 12 remaining Democrats on the panel, none have announced a definitive position on the issue yet. Spokesmen for Reps. Rahm Emanuel (Ill.), Chris Van Hollen (Md.), Xavier Becerra (Calif.), John Tanner (Tenn.), Allyson Schwartz (Pa.) and Kendrick Meek (Fla.) said that their bosses were still studying the matter.

Lobbyists for the private equity industry say they are trying aggressively to inform lawmakers, Republicans and Democrats, of the practical effects of the legislation, which they claim would harm capital markets. Henry Kravis, the head of private equity giant Kohlberg Kravis Roberts, gave a speech on private equity to the moderate Blue Dog Coalition at the group’s breakfast meeting a couple weeks ago. The speech was planned months before the carried interest fight erupted.

Casey’s speech suggested to some lobbyists that defeating the legislation might not be as much of an uphill battle as they previously thought. “It was taken as a positive sign that a staffer for someone of that stature in the New York delegation was aware of this issue and felt so strongly about it that he was willing to talk about it in front of his colleagues,” one person connected with a private equity firm said.