Democrats Split Over Bill Affecting Backers

"Once people get over the hurdle of dealing with something new and controversial, and they look at these hard figures, it's interesting how supportive they become," said Rep. Sander M. Levin (D-Mich.), one of the bill's authors.

But the wealth of the Democrats' target has proven to be a treasure trove for party fundraisers. Hedge funds and investment firms have been pouring money into Washington, contributing $11.8 million in the first nine months of this year to candidates, party committees and leadership political action committees.

That is more than the $11.3 million they gave in all of 2005 and 2006, according to the Center for Responsive Politics. More than two-thirds of that money has gone to Democrats.

Their contributions to congressional candidates, congressional campaign committees and congressional leadership PACs total nearly $4.8 million this year, well over the $3 million given in 2005 and 2006. Eighty-three percent has gone to Democrats, compared with the 53 percent they received in the last election cycle.

Cohen earned $900 million last year, according to the magazine Institutional Investor's Alpha; he lives in a 32,000-square-foot mansion in Greenwich, Conn., with an indoor basketball court and a pool, and he owns some of the finest contemporary art in the nation. If his income breakdown is similar to the industry average, $180 million would have been subject to a capital gains tax of 15 percent, yielding $27 million. That is $36 million less than what he would have paid if the income were taxed as ordinary pay.

In the past two years, Cohen has given the DSCC $55,200, plus $24,450 in campaign contributions to Sen. Joseph I. Lieberman (I-Conn.) and $4,600 to Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), according to the Center for Responsive Politics. Both senators are undecided on the issue, their spokesmen say.

Simons, in earning $1.7 billion last year, was ranked as Alpha magazine's highest earner for the second year in a row. The former Defense Department code breaker, who has a doctorate in mathematics, personally charges clients 5 percent of the funds they give him, plus 44 percent of the earnings on their investments. That is more than double the industry's standard 2 percent management fee and 20 percent performance fee.

Democrats have spun that into gold of their own, according to the Center for Responsive Politics. Simons has donated $78,500 to the DSCC since 2005, $25,000 to the Democratic Congressional Campaign Committee and $25,000 to the Democratic National Committee. He also has given $10,000 each to the state parties in Michigan, Pennsylvania and Florida; $8,700 to Sen. Hillary Rodham Clinton (D-N.Y.); $6,500 to Dodd since last year; $4,600 to House Speaker Nancy Pelosi (D-Calif.); and $1,000 to Senate Majority Leader Harry M. Reid (D-Nev.), among others.

"People with large amounts of money will gravitate to the people in power," said House Financial Services Committee Chairman Barney Frank (D-Mass.), a co-author of the House bill who has also received contributions from private-equity firms.

House Democratic Conference Chairman Rahm Emanuel (Ill.) agrees. He initially was skeptical of the bill, but last week he helped vote it out of the Ways and Means Committee. Emanuel even wrote the provision blocking offshore tax deferrals, knowing it was a direct challenge to one of his boosters, Citadel Investment Group of Chicago. Kenneth C. Griffin, Citadel's founder, cleared $1.4 billion last year, and he has given $4,000 to Emanuel, along with $63,900 to the DCCC, which Emanuel headed.

But Frank cautioned that the fight has not been easy, especially for Schumer. "Hedge funds are to New York what tobacco has been to North Carolina. People don't like to tax their constituents," he said.

If the bill can clear the House, the issue will move quickly to the Senate, where Republicans -- and some Democrats -- have grumbled that a measure to stave off the AMT, regardless of its cost to the Treasury, need not be paid for by any tax increase, much less the increases in the House bill. Sen. Max Baucus (D-Mont.), chairman of the tax-writing Finance Committee, said he does not think there is enough support to approve a tax increase on hedge fund managers' income.

Reid said last week, however, that the Senate will stick to its pledge to offset the cost of any tax cut, AMT included, and he pointedly said that no tax increase is beyond consideration.