The Senate majority leader, Harry Reid of Nevada, is open to considering legislation that would raise taxes on hedge funds and private equity firms. Mr. Reid has stayed quiet on the proposals now percolating in Congress, but he told The New York Sun yesterday that it was a “very important” issue.

“I support looking at it,” he said. He would not say whether he supported the tax hike, but he did highlight income inequality in the nation and said that top hedge funds made $4.4 billion last year.

One hedge fund manager, Brian Horey, who is president of Aurelian Partners, said it appeared that Congress was looking for revenue. He said the legislation was “ill-advised” and represented “the politics of envy.”

Rep. Charles Rangel of New York, the chairman of the powerful tax-writing Ways and Means Committee, has sponsored a bill that would tax the “carried interest” of partnerships at ordinary income rates rather than as capital gains. Another bill, offered by senators Baucus and Grassley, the chairman and the top Republican on the Senate Finance Committee, would tax private partnerships as regular corporations when they go public. That measure is popularly referred to as the “Blackstone bill,” after the Blackstone Group, whose public offering drew attention to the tax issues and the conspicuous consumption of Blackstone’s chief executive, Stephen Schwarzman.

The Bush administration has threatened to veto tax increases, but it is only in office for about another year and a half.

Mr. Horey, a rare fund manager who was willing to speak to the Sun on the record about the issue, said it is hard to see how increasing taxes is helpful to New York at a time when the city is facing increasing competition from other places. He said a general partner who has a choice of domiciling a fund in America, where the tax would be 35%, or overseas would be inclined to put that same investment to work in the foreign setting where taxes would be more favorable.

The Rangel bill would treat carried interest like a fee for services, taxed as ordinary income. Those who oppose the legislation see the work of partnership managers as more akin to the “sweat equity” of building a business, such as when a person turns a small computer store into a multimillion dollar corporation. In those situations, a capital gains tax of 15% is paid when a business is sold.

Mr. Horey said that America has been an innovative leader in the area of venture capital and private equity, and has been successful in growing that part of the capital markets. He said that America would be damaging its competitive position in an industry in which it is a world leader.

Lawyers who represent fund managers said their clients were concerned about the potential tax increases.

“Wall Street feels very much put upon by these initiatives,” said the chairman of the investment funds practice at Thacher Proffitt & Wood, Steve Howard. He said the general mood on Wall Street is that private equity and hedge fund sector should not be singled out for special adverse tax legislation. He said that because the hedge fund and private equity worlds have been private worlds for many decades, public offerings like Blackstone have caused legislators to now see the levels of compensation and tax structure. For the legislators “it’s the thrill of discovery” while for Wall Street, the levels of compensation and tax structure have been the lay of the land for decades, he said.

Mr. Howard said that the view from Wall Street was that the legislators who are currently proposing bills in Congress have not really understood the nature of this business and how it has been taxed and structured for the last 30 or 40 years.

Mr. Howard said that in September the subject would heat up dramatically because more private equity firms would file with the Securities and Exchange Commission to do initial public offerings, and Congress will be in session.

Congressional hearings could, however, be planned for July or August. “This could be a long summer on Capitol and on Wall Street,” said a partner who heads the investment funds group at Kaye Scholer, Timothy Spangler. He said there was a high level of concern among those on Wall Street. “Everyone is concerned how this will impact an industry that has done so very well,” he said.

A principal in Eisner LLP’s personal wealth advisers practice, Brent Lipschultz, who is an attorney and certified public accountant, said that those who provide income and estate tax planning for clients are studying the proposed legislation and trying to understand its breadth and depth. While at its inception, the legislation could have been striking at a particular industry group, he said the legislation may have a broader effect.

An attorney at the law firm of Moody, Purrington Weil, David Moody, said it was too soon to tell the outcome, but said that the legislation had gotten a lot further along already than he originally thought.

A professor at Columbia Law School, John Coffee, said the subject of raising taxes on hedge funds and private equity funds could well become an election issue. He said senators Grassley and Baucus have constituents in Iowa and Montana who do not particularly like seeing New York financial managers making a billion dollars a year and paying taxes at a lower rate than they do.

The president of the Partnership for New York City, a nonprofit organization of business leaders, Kathryn Wylde, said that there is concern that these proposed bills “might be another arrow in London’s quiver.” London has been competing with New York as a global financial center, and a magazine catering to hedge funds, Trader Monthly, recently ranked New York behind London.

Treasury Secretary Paulson this week said that singling out one industry did not make sense. “It better not be a New York tax,” Ms. Wylde said.