One of the less appetizing sights in politics today is Democrats defending laws that tax high-finance buccaneers at lower rates than the police who guard their Aston Martins. While many Democrats are trying to close these loopholes, some are trying not to. It's about raising money, of course.
Moneybag Democrats justify their stance by arguing that private-equity and hedge-fund billionaires do the public a great service and that taxing them like everyone else would reduce their incentives to get out of bed in the morning. Many Republicans say much the same thing - but they believe it.
Let's start with Sen. Chuck Schumer, Democrat from Wall Street, I mean, New York. He's not enthusiastic about a bill in the Senate Finance Committee that would subject publicly traded private-equity partnerships to a corporate-income-tax rate of 35 percent - rather than the ludicrously low 15-percent deal for capital gains.
This is an awkward development for Schumer, who leads fund-raising for Senate Democrats. He collected $385,400 from private-equity managers in the 2005-2006 election cycle.
For a long time, the private-equity folk amassed their outlandish fortunes in relative obscurity. The general public didn't know what they did or how little they were being taxed. Politicians trolling for contributions, meanwhile, could do the billionaires' bidding in peace.
Then the CEO of Blackstone Group, a huge private-equity firm, dragged the racket into the spotlight by inviting the media to chronicle his mind-boggling wealth. Stephen Schwarzman's extravaganza of self-display culminated in a birthday party for himself in which Rod Stewart and Patti LaBelle sang - and President Bush offered a video greeting.
The day that Blackstone sold its stock to the public, Schwarzman's personal worth swelled to $9 billion. That propelled him past Apple founder Steve Jobs on the list of richest Americans.
One need not be a Bolshevik to ask: Why is Schwarzman paying taxes at lower rates than the people who pick up his garbage?
Nonetheless, Connecticut Sen. Chris Dodd has called for a bill-slowing investigation into how the Senate proposal might hurt markets. Odd, but investment bankers and corporate CEOs have long endured having their millions taxed like ordinary income. They're not going hungry, and the world still swims in capital.
Dodd has reasons for this perverse concern, one of which is his campaign for the Democratic presidential nomination. To fuel that quest, Dodd has collected $347,300 in contributions from hedge-fund managers, many of whom congregate in Greenwich, Conn. Hedge funds are huge, virtually unregulated pools of capital. They perform exotic investment techniques that your mutual fund isn't allowed to do.
Dodd's popularity with hedge funds has more to do with his position as Senate Banking Committee chairman than his prospects for becoming president, which are rather small. With leading House Democrats wanting to raise taxes on some hedge-fund managers as well as their private-equity brethren, these moguls are definitely in the market for friends in Washington.
In the first quarter of this year, hedge-fund executives and their spouses have given over $1 million to presidential candidates, with 75 percent of it going to Democrats. They just threw a fund-raiser for Hillary Clinton, who has been mighty quiet about the proposed legislation to raise their taxes. John Edwards worked last year for Fortress Investment Group, a hedge fund whose executives have given freely to his campaign.
If big-money Democrats stop others in their party (and some Republicans) from forcing the super wealthy to pay their fair share of taxes, what exactly do they stand for? Never mind "soaking the rich." How about bringing their taxes up to middle-class levels? That Democrats would even debate this is bad for digestion.
Froma Harrop is a member of The Journal's editorial board and a syndicated columnist.
© 2007 The Providence Journal