President Bush, though, has pledged to veto a bill passed by the House, HR 6275, that would pay for new middle-class tax relief by closing a loophole that allows buyout managers to pay a 15 percent tax rate on much of their income — lower than that paid by many nurses, firefighters and middle managers.

As our elected officials and regulatory agencies navigate their way through one of the worst financial crises since the Great Depression, most analysts have focused on reforming the subprime mortgage market. But private equity is another massive, secret and largely unregulated force operating beneath the radar screen of disclosure and regulation — and with the potential to derail our economy.

While the favorable treatment of carried interest — the percentage of profits that buyout executives keep for themselves as a performance fee — has received most of the attention, it’s just one of the strategies that buyout firms employ to game the tax system and fatten their paychecks. Buyout firms rake in big dollars by loading up the companies they buy with debt, then deducting the interest payments. All businesses deduct their interest payments as a business expense, but leveraged buyouts typically have two or three times as much debt as equity. When the interest payments on that debt are subtracted from a company’s earnings, there’s often little or no taxable income left. That means fewer tax dollars for already-strapped state and federal treasuries.

Bring this up to the buyout industry, and they’ll claim that if lawmakers do anything to change the way they make their money, they’ll just go overseas. It’s a good line, but it’s not clear where they’d go. Denmark, Germany, England, Australia and the European Union are all considering legislation to cap interest deductions for debt used to finance leveraged buyouts.

When buyout firms depend on unfair tax advantages to prosper, it’s bad news for the economy as a whole. That’s why this coming Thursday, July 17, we are calling attention to the bad behavior of the private equity industry — and to the lax laws and regulations that have rewarded that behavior — with demonstrations in 100 cities worldwide. It’s a call from Main Street that change is needed, and the buyout industry and its tax dodges are a good place to start.