by Randyl Drummer for CoStar

The economy needs jobs, and to help pay for his $447 billion jobs creation program, President Obama is once again urging Congress to raise the tax rate on carried-interest investment income earned by real estate partnerships, private equity investors and hedge fund managers.

But Republicans in Congress, big private-equity players, and real estate industry groups are already asserting that tax hikes in the 200-page act will curtail job creation, weaken property markets and hurt the economy.

Regularly since at least 2007, Congress has considered plans to change the federal tax treatment of carried interest compensation, proposing to tax it as ordinary income at 35% rather than the much lower capital gains rate, currently at 15%. Most recently,
the House, which was under Democratic control at the time, passed carried interest legislation in May 2010, but the bill languished in the Senate, which requires a two-thirds majority to avoid a filibuster.

Each time, the proposed legislation has died under withering and coordinated opposition, not just from Wall Street, but also from commercial real estate and mortgage lending groups claiming that higher taxes on carried interest will discourage real estate ventures from investing in projects that create jobs and economic prosperity.

When Republicans won a House majority in last fall’s mid-term election, many observers wrote off the notion of a higher tax rate on carried interest as a political impossibility. But the issue has remained on the back burner during 2011 as the Administration and congressional democrats search for ways to fund new jobs, pay for infrastructure improvements and stimulate the moribund economy while reducing the federal deficit.

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