Executive Excess on Capitol Hill
f there were a futures market for the fate of the so-called “carried interest loophole” (and who knows, these days, maybe there is), its value would be in a state of near constant fluctuation. Herewith, a quick recap of its ups and downs.
Last summer, the Democrats proposed closing the multibillion-dollar tax loophole for managers of hedge funds and private equity firms. Under the current tax code, they now pay a mere 15 percent capital gains rate on the fees and bonuses (i.e., “carried interest” income) they get paid to manage investment funds they do not own, rather than the 35 percent rate they’d pay under normal income tax schedules. Estimates are this loophole–actually, it’s more the size of a levy breach–will sap the Treasury of $26 billion over the next ten years.
But in October, Senate majority leader Harry Reid seemed to backtrack, saying that the Senate schedule was a little too tight to fit in a vote on the measure. Then, on Friday, the House revived hope for the provision when it passed Charlie Rangel’s tax reform bill (HR 3996), which would, among other things, close the loophole. But the revival may be short-lived, since the bill now has to make it through the Senate Finance Committee, where one key Democrat, Charles Schumer, has indicated outright opposition and another key member, John Kerry, shied away from endorsing it back in May, suggesting the hedge funds be given a ten-year grace period before the loophole is closed.
All this back and forth would be more understandable if the bill itself were controversial, but on the merits and on the politics, it’s a no-brainer. On Wednesday the Washington Post did an excellent job of unraveling why such a red-meat issue for Democrats has lost steam in the Senate, focusing especially on Schumer, the Senate Democrats’ chief fundraiser, who, the Post reported, switched his position not long after James Simons, a hedge fund manager who earned $1.7 billion last year (you read that right), donated $28,500 to the Democratic Senate Campaign Committee, which Schumer chairs.
And of course the New York senator also represents Wall Street, which these days is chock-full of fiscal conservatives and cultural liberals who are leaning more Democratic than Republican. Hedge funds and investment firms, the Post reports, more than doubled their giving from 2006 to 2007, handing nearly $12 million so far to campaigns, parties and PACs–a stunning 83 percent of which has gone to Democrats. And the majority of staff working for the new industry trade association–the Private Equity Council–are former Democratic Hill staffers. “If you’re a Democrat and you have to choose between the alternative minimum tax and the hedge fund industry, that’s one tough ideological choice,” Viva Hammer, a former Treasury Department staffer, told the Post. “It’s a choice between your votes and your wallet.”
But what about John Kerry, whom the Post doesn’t touch? Kerry supports a proposal to close the loophole that allows hedge fund managers to shelter their pretax income offshore (part of the bill that the House passed Friday) but hasn’t endorsed the proposal to close the larger loophole giving the same Wall Street barons preferential tax treatment.
On Friday, The Nation contacted Kerry’s office to ask where he stood and received a statement in which, for the first time, Kerry went on the record in support of closing the loophole: “We should be dealing with deferred compensation, tax havens, and capital gains, and, yes, we should be fixing the carried interest issue,” he said in a statement. He then proceeded to leave himself considerable wiggle room: “But we should do it in a way that avoids unintended consequences and is thoughtful about the fact that carried interests are common features not just in private equity and hedge funds but in real estate, venture capital, and start-up companies, and fields including healthcare and biotech.”
This is progress, but it’s pretty easy to see why Kerry would want to preserve an exit strategy (and not just in the interest of maintaining the narrative suspense in the tale of our poor benighted tax fix). According to one lobbyist (who doesn’t work for the firms), two prominent Boston-based firms that are members of the Private Equity Council–Bain Capital Private Equity and Thomas H. Lee Partners–have been lobbying Kerry hard on the issue. Moreover, FEC data indicate that not long after closing the loophole was first proposed back in April, a number of Bain private equity partners started to make big contributions to Kerry. Partners Josh Bekenstein, Diane Exter and Jonathan Lavine have all given in excess of $4,000 each to the Kerry Senate campaign fund. Bain’s mananging director, Mark Nunnelly, and two staffers have also all maxed out to Kerry this cycle with $4,600 each to his Senate campaign.
Some of these Bain partners have also given tens of thousands of dollars to key Democratic party campaign committees in recent years. But even that is chump change compared with what is at stake. According to Executive Excess, a report by the Institute for Policy Studies and United for a Fair Economy, while US corporate CEOs made an average of $10.8 million last year, the top twenty private equity/hedge fund managers pocketed an average $657.5 million, or 22,255 times the pay of an average US worker.
So Kerry (like many of his colleagues) is in an all-too-familiar position, caught between the interests of his voters and his donors. Given what the partners at Bain and elsewhere have to lose, smart money in DC is on the loophole surviving this legislative session intact. But as Kerry’s recent statement shows, the first step to ending the suspense over its fate is simply to ask Democratic elected officials just which side they’re on.
Charlie Cray is director of the Center for Corporate Policy in Washington, DC. Christopher Hayes, a Nation contributing writer and a Puffin Foundation Writing Fellow at The Nation Institute, is a senior editor of In These Times.
Copyright © 2007 The Nation
Talk is cheap.
Calling DanielDavid! Come to the rescue of your beloved Dems! Calling DanielDavid!! Tell us once again how they are the ‘better party’
I used to think that Chuck Schumer was a Democrat.
iowairish November 13th, 2007 11:42 am
for pity’s sake, don’t humor him, he’s been doing so much better lately.
$28,000? Man, those Democrats aren’t competent enough to milk a gold-lined doner for a bribe properly. You’d have thought they’d have managed to squeeze a couple of million out of that one.
Further proof that congress is collaborating with dictator bush.
We need to elect as many new faces into Congress as possible in 08. This old guard enabling Congress of insiders sees their job as getting themselves reelected and not representing the voters but their campaign donors.
The richest of the rich get to pay less taxes simply because they bribe our politicians. Say it any way you want it is indeed a classic tale.
The old guard status quo Congress closes ranks refuses to impeach and goes along with the same old same old. We need new people to run and be elected in 08.
How come the selecting process of new candidates isn’t being covered in the media. They will wait till insiders pick candidates and then announce who we are to vote for. Why aren’t they talking about who will be ruinning for the congressional races in 08.
We need an anti-incumbant attitude after being failed so repeatedly by this semi-permanent old guard of insiders we have now.
New people will shake things up. Disinfect…don’t reelect!!!
kucinich
geoff29— “don’t humor him…he’s been doing so much better”
Maybe you’re not reading all the posts I’m reading. I think maybe he’s just checking in later, and you’re not seeing them. I haven’t seen much let up at all, but hey, maybe he gets paid by the word, or the post.
I asked him that once, but haven’t gotten an answer. In fact I think he’s decided not to answer me at all since he claims I have a warped sense of humor.
Sigh…maybe that’s why I’m not a Dem faithful. Wrong politics, wrong funny bone. Good thing he can’t see my wardrobe and hairdo. He’d probably breathe a sigh of relief that I no longer want to be part of his Party.
Quit the Demcratic Party!
Sign Dave Lindorff’s petition:
http://www.thiscantbehappening.net
You won’t get an immediate response from the national party, but if enough people actually quit, the locals will panic - and they’ll get a response.
iowairish,
Thanks for calling upon me! The only thing wrong with your Democrats is that there aren’t nearly enough of them in the Congress yet. Of course Chuck Schumer is a New Yorker first, beholden a bit to Wall Street. But do you think the newly elected Jim Webb is? You can bash these guys all day for not yet passing tax bills Bush would likely veto anyway. So what?
When you have a Dem president and a Dem Congress at one time, you get agenda change, and you get a reasonable
expectation that citizens will be able to DEMAND some things and get them. With Republicans in control or balanced gridlock (as today) you do not.
As for the question of whether I get paid as a shill for Democrats, I do not. I am not active in any party work, nor am I even so much as acquainted with anyone who is.
Daniel David, you are also not a student of history. Clinton had two years of a Democratic majority and he signed NAFTA which he had promised he would fight. That act cost the Democrats the House, since the labor unions stayed home in 1994. That wasn’t his only betrayal of the working people.
Schumer beholden “a bit” to Wall Street? With very few exceptions, the Democratic Party, including the entire leadership, is beholden to Corporate America. I’m beginning to think you’re dense or still living in some past and nonexistent era. But I agree we would see a few more crumbs fall on the floor for us with the Democrats. If you want to work your ass off for crumbs, I guess that’s OK. Myself, I resent my hard work going to support the rich.
By the way, why are the Democrats, again with VERY few exceptions, not complaining about the loss of our civil liberties? Or trying to do a damn thing about it?
And it isn’t just about tax bills. The entrenched leadership (chosen by the rank and file of the House after all) have refused to use any of the parliamentary measures available to them except to keep impeachment off the table.
The Democrats have one agenda, to get elected, and they don’t care how many people are killed or starve as long as they get what they want.
willybill: I like your Ballot for a People’s Referendum. True democracy, from the bottom up.
On September 15, Inter Press Service (www.ipsnews.net)reported just that sort of initiative shown by the people of Colombia. In 1990, 5 million voters in Colombia succeeded in their demands for a new constitution.
In 1997, 10 million supported a Citizens’ Mandate for Peace, Life and Freedom. A year later, a law creating a National Peace Council was enacted.
In this year’s election, voters were to be given the opportunity to vote for the following statement (on the regular ballot if allowed and on a privately printed one if not):
“I vote for freedom, peace and a humanitarian accord(for a prisoner-hostage swap). I say no to kidnapping and forced disappearance and displacement, and no to violence against children and all other civilians. I say yes to life, truth, justice, reparations and guarantees that abuses will not be repeated again in the future. Peace requires a political commitment, a ceasefire, dialogue and negotiated solutions.”
Imagine what American citizens would write if we could put a statement like that on next year’s ballot, for instance: “I denounce preemptive war and all violence including torture and unwarranted imprisonment.” Et cetera.
Had enough yet?
Don’t vote Democrat! (unless you’re a hedge fund manager of course … but they probably vote Republican anyways.)
The Democrats want you to be living in some past era. They want you to believe they are still FDR’s party of the new deal coalition.
But that Democratic Party finally died in the late 80’s and hasn’t been seen since. Now they are the party of the hedgefund managers and whoever else can give them lots and lots of money. If you aren’t making 5 figure contributions to the Democrats, the Democrats don’t give a damn about you and could care less what you think. Except they’ll lie to you ever election trying to pretend they are still FDR’s Democrats.
If you are voting Democrat, you are voting against your own interests. It doesn’t matter if there are more of them in Congress, and it doesn’t matter if they control the White House, because they don’t give a damn about us. They give a damn only about the millionaires that pay them bribes … uh, contributions. So I don’t care if the Democrats win or lose, because they’ll keep screwing me as badly as the Republicans. At least the Republicans are semi-honest about it.
Don’t vote Democrat. That’s the sure way to waste your vote.
And come to Denver next year to tell the Democrats what you really think of them …. loud and clear with voices a million strong!
It is another example of the cliche: Congress is a parliament of whores.and Schumer is a cheap whore. $28,500 from a billionare is a disgusting pittance. Why, even a middle class person can be equal to a billionare at those prices!
Immediately after I cast my vote for Kucinich in the primaries, my voter registration will be changed to “NO PARTY AFFILIATION”.
The betrayal of trust has grossly exceeded the limits of human sensibility!
BeForKids to Daniel David:
“I’m beginning to think you’re dense or still living in some past and nonexistent era.”
Take your pick. The answers from the Dem-haters are all the same: get a new party! (But, hey, there’s that “nonexistent” word popping up again.)
The way you reform Democrats is elect them, make them own the problems, and demand what you want. If you don’t do this, you will be ruled by Republicans.
Gee, Daniel David, how’s it working so far?