The Obama Administration's proposed jobs bill has revived the idea of raising the tax on carried interest, the portion of an alternative investment manager's income that stems from performance.

Such income is now taxed at the very low capital gains rate instead of the ordinary income rate. Management fees are taxed at the ordinary income rate. Anything that raises taxes on private equity firms and hedge funds of course is going to cause a firestorm of lobbying activity and controversy on Wall Street. And the debate has already reignited.

The administration says the proposal is fair and would raise $18 billion, which isn't a tremendous amount in the scheme of things. The industry maintains that higher taxes will kill jobs and inhibit growth. The issue has heated up in tax court as well, as a recent decision has been interpreted as giving the giving the green light for changes to the tax structure.

The issues here are tricky, politically and legally. But hopefully, we'll end up with some sort of a compromise. Warren Buffett has emerged as a surprising supporter of changing the tax rate on carried interest. He made the issue personal by publicizing that he was taxed at only 17.4 percent, the lowest of anyone in his office. Steve Schwarzman, CEO of Blackstone, countered by publicizing that his effective tax rate was 53 percent, including federal and state and local taxes.

For more:
- here's an article from Fortune

Related article:
Washington debates carried interest taxes again, end of an era