(Bloomberg) President Barack Obama, seizing on a lifeline from Republican presidential candidates, is dusting off his campaign to end a tax break exploited by private-equity managers, venture capitalists and some hedge fund executives.

Using the backdrop of a budget fight with Congress that is threatening a government shutdown, Obama made his pitch to some of the nation’s top chief executives to tax income earned by fund managers, called carried interest, as ordinary income instead of capital gains.

“Keeping this tax loophole, which leads to folks who are doing very well paying lower rates than their secretaries, is not in any demonstrable way improving our economy,” Obama told executives at a Business Roundtable gathering Wednesday in Washington.

Rising income inequality has made hedge fund managers the target of Democrats and Republicans seeking the 2016 presidential nomination, and some Republicans in Congress have expressed openness to the idea of raising the tax rate on carried interest.

Any push to make the change is a long-term play. House Ways and Means Committee Chairman Paul Ryan has said the proposal won’t make it into the tax debate at least until 2017, when a new occupant will be in the White House, and Republicans will attempt to revamp the entire tax code.

Campaign Issue
While Obama has pushed for raising the tax since first taking office, the issue got a boost from Republican presidential candidate Donald Trump, who said at a news conference last month that “hedge fund guys have to pay up.”

Former Florida Governor Jeb Bush, another Republican contender, made taxing carried interest as ordinary income part of his campaign platform. Bush’s plan also would lower rates on both ordinary and capital income, significantly softening the blow of the carried interest change.

Critics of Obama’s plan include Republicans in Congress and hedge fund executives on Wall Street.

“President Obama is obsessed with raising taxes to pay for more Washington spending,” Cory Fritz, a spokesman for House Speaker John Boehner, said in an e-mail.

Industry Reaction
Eliminating the carried-interest tax advantage will “adversely affect the treatment of startup ventures, small businesses, interests in real estate and natural resources, and additional enterprises,” James Maloney, a spokesman for Private Equity Growth Capital Council, a Washington trade group.

Taxing as ordinary income the profits interest that private-equity managers receive in the companies they take over and manage would raise $17.7 billion over a decade, according to the Treasury Department. Those profits now are subject to a 23.8 percent top tax rate on gains rather than the 43.4 percent rate that applies to wages.

Obama said that revenue could be used to double the number of workers in job-training programs and aid millions of college students.

He said the administration is still in talks with Ryan and New York Democratic Senator Charles Schumer, who is poised to become the party’s leader in the chamber, on reworking the U.S. tax code.

The president also asked the business group to put pressure on Republicans to come to terms on a federal budget for the next fiscal year that will end the across-the-board spending limits put in place in an earlier deal.

Spending Caps
Obama wants Congress to lift spending caps that restrict the budget for domestic health, research and education programs. He has threatened to veto every spending bill Republicans have produced so far because they would provide less money for the government than he requested.

“If we don’t reverse the cuts that are currently in place, a lot of the drivers of growth that your companies depend on, research, job training, infrastructure, education for our workforce,” will shrink, he told the business leaders.

Obama also expressed confidence in completing the Trans-Pacific Partnership trade accord this year

He also took an indirect jab at Trump and other Republicans, who he said are campaigning by taking an unjustifiably dour view of the state of the U.S. economy. Obama did so by turning around Trump’s slogan, “Make America Great Again.”

“America’s great, right now,” Obama said.

—With assistance from Justin Sink and Richard Rubin in Washington.

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