The push to raise taxes on hedge funds, private equity firms and their managers seems to have stalled for this year in Congress.

The Washington Post is reporting that Senate Majority Leader Harry Reid, D-Nev., has told buyout firms that there is little prospect of taking up the legislation in the Senate this session, given the amount of difficulty the Senate has experienced in passing other bills.

One of the main reasons for the impasse has been intense lobbying by the hedge fund and private equity industry. During several hearings before the Senate Finance Committee and the House Ways and Means Committee in recent months, the industry has been able to come up with a number of arguments against raising the tax from 15 percent to as high as 35 percent, arguing that the increased tax would stall economic growth.

The move to raise the tax was prompted by reports of the outsize earnings of the Blackstone Group after its initial public offering. The financial industry also succeeded in getting other industries involved in fighting the effort, including the embattled real estate industry.

Chances are that if Congress doesn't take up the bill this year, it's not likely to do so next year either, when lawmakers will be under increased pressure to raise money for their campaigns and don't want to be saddled with accusations of raising taxes. Even though the money might be put to use for widely supported goals such as halting the spread of the alternative minimum tax, the accusation of raising taxes is one that worries many lawmakers, even those in relatively secure districts.

Whether Congress will decide to take up the matter in the future will no doubt depend on the outcome of the 2008 election, and whether outrage continues over the pay packages of private equity executives. By the time 2009 rolls around, chances are that the Blackstone IPO will be a dimly remembered blip on the radar, and the time for reforming the tax structure will have long passed.

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