Mumbai: A fierce campaign in Washington against the perceived excesses of America''s cash-rich private equity industry as it buys out company after company has thrown the planned $33 billion flotation of Blackstone Group LP into doubt.

Blackstone, which is preparing to go public later this month, said the proposed US senate legislation on the taxation of private equity firms could materially reduce earnings and lower the partnership''s value.

The big private equity firm expressed its concern a day after the leaders of the senate finance committee proposed a bill to tax private equity firms that go public like corporations, potentially more than doubling their effective tax rate to 35 per cent from 15 per cent.

Legislators say it is unacceptable for the firm to remain a partnership after a flotation and maintain its tax benefits. "It''s unfair to allow a publicly traded company to act like a company but not pay corporate tax, contrary to the intent of the tax code," said Chuck Grassley, a high ranking Republican member of the Senate finance committee

Grassley has joined forces with his Democrat counterpart, Max Baucus, to draw up legislation closing this loophole.

Experts say Blackstone may have to delay its public offering, as the backlash against the industry''s excesses continues on both sides of the Atlantic. And, even if it finally comes out with a share offer, it would have to re-price its $31-a-share because of a bipartisan measure proposed by Republican and Democratic senators which would close tax exemption to its investors.

But unlike other investment firms, private equity companies are structured as partnerships - allowing investors to pay capital gains tax of only 15 per cent rather than the usual 35 per cent.

Legislators are targeting to fill this loophole in tax laws, edged on by unions and civil rights leaders like Jesse Jackson.

Blackstone''s senior executives, led by the billionaire Stephen Schwarzman, however, have failed to set a good example either in diversity or in personal and wealth management.

The Blackstone empire has $88 billion of funds under management and owns businesses including Madame Tussauds, United Biscuits and Orangina.

UK industry had invited criticism from MPs on the Treasury select committee who accused private equity bosses of failing to pay tax in line with Britain''s "progressive tax system". Hours after the meeting the industry''s trade body, the British Private Equity and Venture Capital Association, announced the resignation of its chief executive and a wholesale review of its activities.

A backlash by smaller venture capital businesses keen to keep their preferential tax treatment led to a split in the European private equity trade body, EVCA, which distanced itself from the larger firms, including Blackstone.

There would now be three separate representations for the larger and more controversial private equity firms, the mid-sized firms and the smaller funds.

Although Blackstone would get five years'' grace before the changes take effect, the uncertainty could hit the company''s valuation.

News reports have done more damage to the reputation of the buy-out firms and their bosses. Blackstone''s boss Steve Schwarzman earned $398 million last year and has thrown a series of star-studded Manhattan parties. The Wall Street Journal reported that he has a taste for $400 stone crabs and has ordered his servants not to wear rubber-soled shoes because they squeak too much.

"Schwarzman should not be paying lower taxes than a firefighter," said Damon Silvers, associate general counsel of the AFL-CIO union federation:

In the UK, the GMB union, which is spearheading a campaign against the excesses of the private equity industry, urged Gordon Brown to adopt a similar tax policy.

The GMB has selected eight private equity bosses, including Damon Buffini of Permira, owner of the AA and Birds Eye, and Guy Hands of Terra Firma, to appear on metre-high colour posters in a "rogues gallery" that will parade around the festival site at Glastonbury next week, where the expected 175,000 revellers will be allowed to vote for the "worst rogue" in the industry.

Private equity have some defenders who say it was different to other money management enterprises because of the degree of risk to which founders staked their own capital. They also fear that such a legislation could weaken the New York Stock Exchange''s attempts to compete in a global market for flotations.