THE BURNED OVER DISTRICT

For a long time, private equity partners have taken huge chunks of the profits earned with other people's money and pretended it their own capital at risk and deserving of the capital gains rate. The result was a sheltering of their earned income from real tax rates, instead being liable for a Romney like 15%. With the likelihood that this will change they are desperately seeking ways to diminish the hit they deserve.

Officially, the private equity industry remains opposed to change. Its lobbying group, the Private Equity Growth Capital Council, began an extensive public relations campaign last year to improve the industry’s image during the presidential race, in which the Republican candidate, Mitt Romney, was criticized for his actions as chief executive of the private equity firm Bain Capital...

But even as the industry continues to press its case, many of its members acknowledge that the carried interest break is coming to an end. “At some point it’s inevitable, so they will deal with it,” said Bradley Morrow, a senior private markets consultant at Towers Watson. If the proposal does re-emerge, the industry is expected to focus its lobbying on softening transition rules.

One issue will be the amount of carried interest reclassified as ordinary income. Mr. Levin’s 2012 bill would convert 100 percent of carried interest. By contrast, an earlier version of the bill proposed capping the affected income at 50 percent to 75 percent.

The industry is also likely to focus on how quickly any changes would go into effect. Lobbyists will probably push for a longer delay, even if it means little or no cap, said Micah W. Bloomfield, a tax lawyer with Stroock & Stroock & Lavan. That would give partners more time to pocket capital gains or restructure funds before the rate increase took effect.

Another point of contention will be the treatment of profits that partners earn when they sell stakes in their firms, a sum known as enterprise value. Currently, profits attributable to enterprise value are treated as capital gains. In earlier bills, they would have been reclassified as ordinary income.

The fruits of their labor should be classified as earned income and the sooner the better. They have had plenty of time to squirrel away their $Billions, now is the time to pay the piper.