Private equity's black sheep

(Fortune Magazine) -- Talk to most private equity fund managers about the bill before Congress to raise taxes on "carried interest," and they'll tell you the proposal is downright un-American. (For more on the bill and its genesis, see Allan Sloan's column, The Deal) Leo Hindery Jr., managing partner of InterMedia Partners, is not most managers. On Sept. 6, Hindery, who's also a former CEO of AT&T Broadband and the YES Network - and John Edwards's economic advisor - went before the House Ways and Means Committee and endorsed the proposal.

"A tax loophole the size of a Mack truck is right now generating unfair windfalls to a privileged group of money managers," he told the committee. Fortune senior writer Jon Birger caught up with Hindery a few hours after his testimony to talk about what it's like to be the guy no one wants to talk to at the party.

I'm guessing you didn't make a lot of friends this afternoon.

It's safe to say that Bruce Rosenblum [chairman of the Private Equity Council and a managing director of the Carlyle Group] doesn't think I'm the cat's meow.

Rosenblum and the others who testified against raising taxes on carried interest portrayed it as an economic issue. You don't see it that way. Why?

The proponents of the status quo all started off their prepared statements talking about how wonderful these industries were for the health of the nation. And, gosh, you wouldn't have a FedEx or housing development in underprivileged communities without them. But we're not talking about the underlying importance to the economy of private equity. It's vitally important. We're talking about properly taxing the management fee of a few people who make so much money and pay a tax rate for which there's no corollary elsewhere in the tax code.

Several other panelists contended that if Congress changed the tax rate on carried interest, PE and hedge fund managers would find different ways to shelter income - like domiciling their funds offshore.

I'm not naive. I know people will go out of their way to pay as little tax as they can. But that doesn't mean that you shouldn't correct inequities in the tax code.

You're a senior economic advisor to John Edwards. In a recent presidential debate he said he'd never pose for the cover of Fortune, as Hillary Clinton did. Out of curiosity, why does Edwards think appearing on the cover of Fortune is such a bad thing?

Being on the cover of Fortune is for a lot of us an honor. The way the question was posed was, Who is going to be friendlier to business? And the editors of Fortune chose Hillary.