Private Equity Tax Could Remedy AMT Pain

"I'm positive that before anything is signed into law, an easy cure for small partnerships would be added to the bill," says Bankman.

Despite the compelling case that has been made for the measure in editorial pages across the country and by countless Wall Street luminaries, from Berkshire Hathaway's (BRK-A Quote - Cramer on BRK-A - Stock Picks) Warren Buffett to Vanguard founder John Bogle, the House bill has no counterpart in the Senate. Beyond that, it faces a veto threat from President Bush.

The major reason for the bill's cool reception in Washington, D.C. is the influence of the private-equity industry on K Street. Democrats from states that host a thriving population of investment firms -- like Connecticut Sen. Chris Dodd, New York Sen. Chuck Schumer and Massachusetts Sen. John Kerry -- have quietly signaled opposition to the bill.

The Center For Responsive Politics, a nonpartisan organization that tracks money and influence in U.S. politics, recently reported that investment funds were "ramping up their lobbying" as the debate over carried interest taxation began. Blackstone signed the largest single contract for lobbying services in the first half of 2007 -- a $3.7 million agreement with Ogilvy Government Relations.

Also, hedge funds have become a cash cow for Democrats. The industry reportedly contributed $4.4 million to House and Senate campaigns in 2006, and 77% of that went to Democrats.