In the coming weeks, they hope to persuade lawmakers to have the tax increase phased in over several years and have a lower percentage of carried interest considered as ordinary income.
Douglas Lowenstein, president of the Private Equity Council, said he and other lobbyists were also trying to scale back a provision in the bill affecting what they call the “enterprise tax.” That provision would require the founders of hedge funds to pay ordinary income tax rates on proceeds they received from selling their firms.
“If you sell a building, a bond, or a business, you are taxed for capital gains in this country,” said Pam Olson, a former Treasury official who now represents the private equity industry. “This would make us the only business in America denied capital gains treatment, which is discriminatory and unfair.”
The protracted fight over carried interest underscores the difficulty Congress faces in trying to close tax loopholes for businesses, even at a time of sprawling budget deficits and widespread public dismay about Wall Street’s influence in Washington.
Fund mangers are typically paid a 2 percent management fee plus 20 percent of any profit they generate, the portion known as carried interest.
Because their compensation is based on investment performance, they have argued that that money should be taxed at the lower capital gains rate.
But Victor Fleischer, the University of Colorado professor whose paper on the subject helped prompt Congress to act, said that carried interest should not qualify as capital gains because fund managers risk mostly other people’s money rather than their own.
“They’re being paid a fee for a service, so it’s fair that they would pay the same rates as others who perform services,” Mr. Fleischer said.
As recently as January, the prospect of any change in taxes on carried interest appeared remote.
Senate leaders had privately assured fund managers that if they needed revenue to pay for a package of tax breaks for certain industries, including wool production and publishing, they would close a loophole that lumber companies had used to claim billions of dollars in clean energy credits.
But in March, two factors changed. First, Representative Sander M. Levin, Democrat of Michigan, who had long championed the tax change for carried interest, became chairman of the Ways and Means committee, which writes tax policy.
Then Congress closed the lumber industry loophole in an effort to provide financial support for President Obama’s health care bill.
As the Senate Democrats sent signs that they were open to a tax increase, investors and their lobbyists mobilized quickly, warning that the proposal could stifle investments that create jobs.
A group of 80 venture capitalists traveled to Boston to urge Senator John Kerry and Representative Barney Frank, Democrats of Massachusetts, to exclude their business from the tax change, according to Jeffrey Bussgang, a partner at the Boston venture capital firm Flybridge Capital Partners.
The Real Estate Roundtable also tried to negotiate an exemption for real estate investment trusts, arguing that the higher tax rates would hurt the recovery of the real estate market.
Robert L. Johnson, founder of the Black Entertainment Television, said the tax change would inadvertently squeeze out minority entrepreneurs because, he contends, they rely heavily on start-up financing from venture capital and private equity firms.
“This legislation would cause a rapid decline in minority private equity firms and possibly eliminate minority participation in this important financial sector of the American economy,” he said.
By early this week, Congressional leaders had agreed to reject exemptions for any type of investment fund.
“This is an issue of fundamental fairness,” Mr. Levin said in a conference call on Tuesday.
During floor debate Friday, carried interest received little mention, except from several Republicans who warned that a tax increase for fund managers would slow the economic recovery.
“This is not a time to raise taxes on investments in business. That’s a sure way to kill jobs,” said Representative Lee Terry, Republican of Nebraska.
As the bill moves to the Senate, lobbyists say they are focusing on a handful of Democrats — including Robert Menendez of New Jersey, Maria Cantwell of Washington and the chairman of the budget committee, Kent Conrad of North Dakota — to reach a further compromise that would lessen the sting of the change.
One proposal would lower the amount subject to ordinary rates to 60 percent, from 75 percent.
Mr. Lowenstein of the Private Equity Council said he was encouraged by some of the last-minute changes made this week, before Congress breaks for a weeklong recess, and hoped to further lessen the impact.
“We will press our case during the recess and hope to build support for an outcome that is pro growth and advances the recovery,” he said.