Senate Democrats have watered down a proposal to raise taxes on investment-fund managers' "carried interest" compensation. Some senators have argued that it's a fairness issue, while others have raised concerns that bolstering the tax might hinder creation of capital investment. The financial industry said that was exactly what could happen. "The proposals will stifle innovation and the free flow of capital," said Scott Talbott, senior vice president for government affairs at The Financial Services Roundtable.

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