Preserving "A Tax Loophole the Size of A Mack Truck"

This week, congressional Democrats proudly hoisted the white flag of surrender when it came to tax fairness, officially shelving a modest proposal to force billionaire hedge fund managers to pay the same tax rates as the janitors who clean their offices. As the Washington Post reported, Senate Majority Leader Harry Reid (D) "told private-equity firms in recent weeks that a tax-hike proposal they have spent millions of dollars to defeat will not get through the Senate."

The capitulation is a triumph of the smallest and most well-funded special interests who are joining with congressional lawmakers of both parties to fight against all efforts to make the tax system more fair.

The Post noted that private equity firms "hired dozens of lobbyists, stepped up campaign contributions and lined up business allies to wage an unusually conspicuous lobbying blitz. As the Politico reports, top congressional leaders have been hosting "private meeting[s] of lobbyists and staffers opposed to the so-called carried interest bill, which would more than double the taxes paid by private equity firms and hedge fund managers."

To understand how sad it is for Democrats to be preserving this tax loophole, consider what private equity executive Leo Hindery said in the New York Times today: "A tax loophole the size of a Mack truck is right now generating unwarranted and unfair windfalls to a privileged group of money managers - to no one's surprise, these individuals are driving right through this $12-billion-a-year hole."

The tax wars do not end here, either. They bleed into every issue, including trade. As just one example, the same Democratic senators like Max Baucus who are helping scuttle the effort to close hedge fund tax loopholes are pretending they want to crackdown on offshore tax havens, all while they push a Panama Free Trade Agreement designed to reward one of the world's worst tax haven countries.

The shenanigans are so nauseating that even some principled Republicans are outraged. The New York Times notes that at the recent GOP presidential debate, Rep. Ron Paul (R-TX) voiced concerns about the "hedge-fund bonanza" saying that it represents a "transfer of wealth from the poor and the middle class to the wealthy," and adding that, in the current monetary system, "the money gravitates to the banks and to Wall Street. That's why you have more billionaires than ever before." Similarly, former Arkansas Gov. Mike Huckabee (R) said, "The reality is that when you have the average C.E.O. salary 500 times the average worker, and you have the hedge fund manager making 2,200 times that of the average worker, you're going to create a level of discontent."

In my upcoming nationally syndicated column out tomorrow, I'll show how at least some Democrats in Congress and in state and local politics are effectively fighting back on taxes. Though Grover Norquist's anti-tax fundamentalism may be alive and well in Washington thanks to the power of corporate lobbyists, there are good signs that this tax debate will ultimately turn around for the better. Stay tuned.

Cross-posted from Working Assets

Comments

[americanwhocares]

Another problem. If the democrats were to close the loop hole, they will be smeared as just more "tax and spend" democrats by the repug smear machine. This machine is salivating waiting for a chance to spend millions on ads concerning this. At this point, it may be the Democratic leadership refuses to play that game. It is certainly sad but true. American voters are such idiots.

[Christian]

As an old Dem, the current crop discuss me and this is an example of one prime reason. So far, i like Ron Paul as well as any in the entire race for president. At least he is honest and not a hypocrite and that is a breath of fresh air. The ranks of the independents are growing, can a third party be that far away? Lord, I for one hope so.

[Zentomato]

Christian, from one old Dem to another I am just as disguted as you are. Ron Paul talks a good talk on the war but when it comes to the many other aspects of government he is really radically to the right. He wants to turn society back to the age of the Robber Barons and strip away much of FDR's New Deal.
David Sirota thanks for being so vigilent for us.

[sonofloud]

Republicans and Democrats are only interested in keeping the status quo.

[jgo]

Since you dislike flat taxes then get use to having one group paying more than another group. Personally I couldnt care if someone doesnt send money to Washington. As if money in Washington does anything.If a hedge fund manager buys 33 yachts,then a factory must hire 1000s of people to build them. What does Washington do with the money?

[Halsey]

jgo...it's not 1000 American's..it's 1000 Chinese or Koreans..or whatever country can get by paying the least...so..no case there whatsoever..
AND..the Hedgies get rich OFF the middle class..creating phantom investments that are not real...I'm in the BIZ..make my living off selling investments..and don't "get" what the hell these guys to except that they create non-existent entities on paper..sell them to countries...rake in billions..then get bailed out by the fed..
all under a republican president who's "supposed" to be for LESS government... smoke and mirrors baby..

David...I so see you as the press secretary IF we a lucky enough to get Richardson or Edwards..or even Biden as the next president.. not under Hilary however..you're far too honest and progressive.... next time you're in LA..look me up...you are a brain I'd love to pick..wise beyond your years (except get Schweitzer OFF clean coal..and onto sugar beets as fuel using the same technology Brazil uses with cane..okay?)

[wldnswmmr]

There is a real sense in which hedge fund managers receive their income in the form of capital gains. They structure it that way, and since the funds are free from SEC scrutiny for the most part, it's between the managers and the IRS. So the "tax loophole" is simply one of many gimmicks which the financially creative use to beat the tax system. The hedge fund debate arises simply because so much money is at stake, because these clever people make so much money. And they use it to make sure the Internal Revenue Code is not amended to interrupt their game, with the able assistance of Charles Schumer, Dem. of NY. Reid knows he can't get a vote to the floor of the Senate, though he might at least force the Republicans to declare their allegiance to the East Hamptons crowd. But, as we know, Harry has no real stomach for a fight, and will simply say there isn't room on the agenda.

[americanwhocares]

Another problem. If the democrats were to close the loop hole, they will be smeared as just more "tax and spend" democrats by the repug smear machine. This machine is salivating waiting for a chance to spend millions on ads concerning this. At this point, it may be the Democratic leadership refuses to play that game. It is certainly sad but true. American voters are such idiots.

[drblack]

Democrats have been the biggest takers of hedge fund money.
I was amazed when I found out that before losing the majority two GOPs actually sponsored a bill to tax and more tightly regulate hedge funds.
Chris Dodd dropped it when he was appointed comitte head.
These funds need more over site.

[tkk]

More and more I am starting to like a lot of what Hillary Clinton has to say. She's a long way from perfect, but she's willing to talk about taxing the uber wealthy to equalize the economy among the entire population.

We know absolutely that Bill did do this and achieved a surplus. I think the country is finally ready for the Clinton's economic and social programs. Hillary has the experience to handle the mess that W is going to leave. Democrats should beware of wanting pie in the sky in the '08 election and look at what's really practical and possible.

Except for Gore, no one has the experience of the Clintons. Democrts should elect them and KEEP THEM ACCOUNTABLE.

We don't really know what pressures the neocons are exerting on liberals. We do know that since the '60s, all the great liberal leaders have been killed. We should get leaders like the Clintons and work from there. If they did a good job for 8 years, then Gore could come out of retirement and get elected by a landslide.

[Pdubya]

I can't believe someone would consider believing Hillary anymore than Mayor Judy.

Yeah, she's willing to talk about it. True.

Now go check out her record:

www.sopr.senate.gov

[scooperss]

Care to cite all that experience Hillary has? You can't count being First lady unless you also acknowledge that Laura Bush, Barbara Bush, Nancy Reagan, etc. are also rich in experience.