Levin: Democrats will target carried interest

“They're managing other people's money, so why should they get a capital gains rate when people who also risk their time pay ordinary income tax if it reaps benefits,” Levin told Bloomberg Television. “That's the basic issue. It's I think, as the president made clear, inescapable.”

Under the current policy, private equity and hedge fund officials frequently have their income taxed as capital gains, not ordinary income.

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The fiscal cliff deal signed earlier this year raised the top tax rate for ordinary income to 39.6 percent, and also raised the top rate for long-term capital gains.

That rate is now as high as 23.8 percent, including a 3.8 percent surcharge on investment income to help pay for the Democratic healthcare overhaul.

Other Democrats, like Rep. Chris Van Hollen (D-Md.), have long called for ending the carried interest break to help reduce deficits. Levin on Monday also tossed aside suggestions that ending the incentive was more symbolic, and would do little in the long run to eat into deficits.

“There's a matter of fairness, and you need to redesign the tax code with equity in mind,” Levin said.

Steve Judge, the chief executive of the Private Equity Growth Capital Council, said the push from Obama, Levin and other Democrats "would upend one hundred years of tax policy that rewards entrepreneurial risk taking, hard work and vision."

"Given the 58 percent increase in taxes paid on capital gains as part of the recent deal to avert the fiscal cliff, it is our hope that any tax reform effort in 2013 will be about crafting policies that incentivize economic growth," Judge added.

This post was updated at 5:25 p.m.