July 26 (Bloomberg) -- Madison Dearborn Partners LLC needed a sympathetic hearing for its concerns about proposed legislation that would more than double taxes on buyout firms, so it turned to an old friend: Representative Rahm Emanuel of Illinois.

Madison Dearborn's chief executive officer, John Canning, said Emanuel came to the Chicago firm's offices several weeks ago and listened as executives made the case that any legislation shouldn't single out hedge funds and buyout firms.

Emanuel, the No. 4 House Democrat, may be one of the best allies to have as Congress debates raising taxes on those industries. Like Senator Charles Schumer of New York, he was one of the leaders of the fund-raising effort that helped the Democrats gain control of Congress in November, serves on a tax- writing panel and has ties to companies that would be affected.

Emanuel said he hasn't decided whether to support a tax increase, though he agrees with Schumer that as a matter of fairness buyout firms and hedge funds shouldn't be the only targets for punishment. Any extra burden should also be carried by oil-and-gas, venture-capital and real-estate partnerships, he said.

``Either everybody's affected, or nobody's affected,'' Emanuel, 47, said in an interview yesterday.

He said personal ties and the campaign donations he has received from hedge funds and buyout firms won't guide his thinking. ``It won't make it tough at all,'' Emanuel said. ``I'm going to get their views, but it's not going to be tough at all.''

Friends and Supporters

Emanuel said he is reaching out to all sides in the tax debate and there's nothing unusual in his discussions with Madison Dearborn. ``I do it all the time,'' he said. ``They've been not only supporters of mine, they're friends of mine.''

Canning, who befriended Emanuel about seven years ago when the lawmaker worked as a Chicago investment banker, said the congressman understood the industry's concerns. ``There's no reason to single out private-equity firms from these others,'' he said. ``There's not one issue that isn't the same.''

A Democratic proposal introduced by House Ways and Means Chairman Charles Rangel of New York would more than double the tax rate paid by hedge funds and private-equity firms or their managers. It would tax so-called carried interest -- the share of profits that managers receive for their services -- as wages at rates as high as 37.9 percent, rather than the capital-gains rate of 15 percent. The legislation would cover other types of firms, including commercial real estate and other partnerships.

Senate Measure

The Senate Finance Committee this month began debating whether to draft a similar measure. In June, the panel's Democratic chairman, Max Baucus of Montana, and its ranking Republican, Charles Grassley of Iowa, introduced a more narrow bill that would tax publicly traded hedge funds and private- equity firms, such as Blackstone Group LP, as corporations rather than partnerships, raising their tax burden from 15 percent to as high as 35 percent.

A top aide to former President Bill Clinton, Emanuel left government from 1999 to 2002 to work as managing director at the Chicago office of the investment bank Dresdner Kleinwort Wasserstein Securities LLC. That career move increased his net worth -- he reported in financial disclosures that he made more than $16 million in 2001 and 2002 -- and gave him fund-raising contacts in Chicago's financial sector.

Links Run Deep

His links to two Chicago firms -- Madison Dearborn and the hedge fund Citadel Investment Group LLC -- run deep. Both have been central to his own bids for Congress and swelled the coffers of the Democratic Congressional Campaign Committee, which he headed in 2005 and 2006.

Employees of Madison Dearborn have donated $77,500 to Emanuel's re-election committee since 2001, collectively emerging as the top contributor to his campaigns in his congressional career, according to the nonpartisan Center for Responsive Politics.

Executives of the $14 billion firm also gave to Emanuel's DCCC. These include Canning, who donated $10,000 in the 2005- 2006 election cycle; Samuel Mencoff, a co-president of the firm, who made $50,000 in contributions, and Paul Finnegan, also co- president, who gave $15,000.

Canning said many Madison Dearborn executives befriended Emanuel when he worked at the investment bank, which was in the same building in Chicago's financial district. ``He introduced us to several prospective investments in his role with Wasserstein,'' Canning said. ``He's a good friend.''

War Chest

Executives and employees of Citadel have donated $57,100 to Emanuel's re-election committee since 2001, making the firm the No. 3 donor to Emanuel's war chest over his congressional career. Kenneth Griffin, the $14 billion hedge fund's president, is primarily a Republican donor, though he gave $25,000 in donations to the DCCC in the 2005-2006 election cycle.

Griffin's spokesman, Bryan Locke, said Griffin is traveling and unavailable to comment.

Overall, the DCCC raked in donations from private-equity firms while Emanuel chaired the committee. During the 18 months beginning in January 2005, the DCCC received $530,900 from the nation's biggest private-equity firms ranked by Thomson Financial, according to a Bloomberg News analysis. That made it the largest recipient among all party committees, campaign committees and political action committees associated with lawmakers.

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

Last Updated: July 26, 2007 00:06 EDT