Democrats propose to raise taxes on the private partnerships

A Democratic proposal to raise taxes on the private partnerships that are behind buyout mania on Wall Street has a good chance of passing because legislators plan to couple it with an extension of Alternative Minimum Tax relief — a combination President Bush would have a hard time vetoing.

The higher taxes would be imposed on private equity and hedge funds — and possibly real estate and other private partnerships — to generate as much as $80 billion in revenues that could pay for two years of relief from the Alternative Minimum Tax, or AMT, investment analysts estimate.

AMT relief under Republican-led Congresses was extended only one year at a time, raising the dilemma that a major new tax burden will be imposed next year on as many as 23 million taxpayers with incomes between $75,000 and $500,000. The tax applies to households that make heavy use of certain tax breaks such as tax-exempt bonds and child credits.

Analysts say the tax increase would be so large that it would imperil the economy, not to mention the political careers of legislators who allow it to happen.