By Jeffrey H. Birnbaum
Washington Post Staff Writer
Friday, September 7, 2007; D02

The real estate industry yesterday added its voice to the growing number of commercial interests opposed to a congressional proposal that would increase the tax rate on income earned by the managing partners of investment firms.

In testimony prepared for the House Ways and Means Committee, Adam Ifshin, president of DLC Management, a real estate development firm, said that companies like his would not be able to expand as readily -- and might never have come to exist at all -- if the tax rate were higher than it is now.

Experts on both sides of the carried interest issue testified before packed audiencesyesterday at hearings held by the Ways and Means Committee and the Senate Finance Committee.

Some leading Democrats in the House have proposed to more than double the tax rate on carried interest to the 35 percent range from 15 percent, the special low rate for long-term capital gains.

Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) said he was considering using the revenue-raising proposal, perhaps along with other tax-simplification measures, to pay for an expensive reduction in the alternative minimum tax. The AMT threatens to raise taxes on 23 million households, some of them middle-income households, an outcome that Rangel said was never intended when the AMT was enacted.

A group that had come out against the tax increase, the National Conference on Public Employee Retirement Systems, said it was no longer taking a position on the measure. The group said in a letter that "some of its members" were concerned but the change, "but a majority of our members do not share that opinion."

Russell Read, chief investment officer of the California Public Employees' Retirement System, said the proposal would probably have little impact on the returns of the nation's largest public pension fund. "It's hard to know what the effect would be," Read told the committee. "Our hope is that it would be small."

Real estate interests, a powerful Washington lobby, remained united against the proposal. "The bill presents a barrier to entry for those of us who bring the ideas, the know-how and the effort to those with money to invest," Ifshin said in written testimony. "Development and redevelopment in many communities would suffer, no question about it."

Ifshin spoke on behalf of the Real Estate Roundtable and the International Council of Shopping Centers. The proposal he opposed has generally been characterized as a tax increase on such Wall Street high-financiers as private-equity firms and hedge funds. But Ifshin and the organizations he represented say a higher tax on carried interest would also affect them. Real estate developers are often organized as partnerships, like the Wall Street firms.

"This proposal is a tax increase on those who take on entrepreneurial risk and devote sweat equity to create or own investment real estate," said Jeffrey D. DeBoer, president of the Real Estate Roundtable, which lobbies for a range of real-estate interests. The tax boost, he added, "is bad for this crucial sector of the American economy."

Executives of private-equity firms argued that a tax increase would send capital overseas that is needed by U.S. companies. Minority business owners have also said that the tax change would deprive their communities of much-needed investment.

Rep. Thomas M. Reynolds (R-N.Y.) said the rate increase would "further undermine New York's position as the preeminent financial center in the world."