Democrats in Congress are backing off from getting tough with hedge fund managers over taxes. Last month in the House, Democrats approved legislation that would tax 75% of earnings for managers of hedge funds, private-equity funds, venture capital firms and other business partnerships as “ordinary income” and the rest as capital gains, which are taxed at a lower rate. But Senate Democrats prefer to go with treating only 65% as ordinary income and 55% for assets held longer than seven years. If the Senate version becomes law, the federal government would lose $3 billion over the next decade.