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Private Equity Firms Lobby Less, As Industry Trade Group Takes More Cash

The proposal to tax private-equity managers’ fees as income rather than at the lower capital gains rate — known as “carried interest” — has been one of the hottest issues on Congress’ plate since it was first proposed nearly two years ago. One veteran K Streeter called it “probably the most lobbied tax provision” since Ronald Reagan’s massive tax reform plan first broke 23 years ago.

But as President Obama prepares to use higher taxation of “carried interest” as a revenue-raiser to help pay for health care reform while paring down the deficit, is it possible that private-equity giants could be spending *less *money on lobbying Congress to preserve their pet tax break?

The Washington Independent analyzed lobbying spending by the top 10 players in the private-equity world (according to Private Equity International’s most recent top 50 list) to see how much K Street cash the firms were burning as “carried interest” reform moves closer to reality. And incredibly, the $2.5 million spent by these 10 firms during the first quarter of 2009 was notably lower than their spending for the last quarter of 2008 ($4.9 million) and the third quarter of 2008 ($3.6 million).

What gives? Could private equity companies be spending less out of an acceptance that taxation of “carried interest” is inevitably going to become law this year — or is Treasury Secretary Tim Geithner’s “public-private partnership” enough of a gift to the industry to keep private investors placid and happy?

Here’s one answer: the Private Equity Council, formed in late 2006 to serve as the industry’s trade association in D.C., reported a slight uptick in lobbying spending early this year after its expenditures remained steady in 2008. Perhaps private-equity giants can afford to trim their individual K Street bills now that their trade group has become a firmly established player in the capital.

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