Carried interest break gets Democratic backers

Among the sticking points in the debt ceiling debate is the White House and Democratic drive to change the treatment of "carried interest," taxing part of fund managers' bonuses fees at the higher rate that applies to personal income, not the lower one for capital gains.

The stakes are high for the Treasury and for the private equity and hedge fund industries, which are fighting the change hard, and they just got a boost from two Congressional Democrats, Jared Polis and Mike Quigley, who signed a new letter to President Obama defending the current treatment of carried interest.

"Such a tax increase would not only damage our already fragile economic recovery, but it would also cripple the spirit of iniovation and entrepreneurship that makes our country so strong," they write, arguing that the current lower taxes on carried intrest encourage private equity investments "in new, untapped markets."

The two dismiss the notion that the change would merely close a "loophole" and write that the tax would "devastate" other areas of the economy as well, including the struggling commercial real estate industry.

The full letter is here.