Some of the Democrats who fought hardest to strengthen the Wall Street reform bill are at the same time seeking to preserve a tax loophole for money managers, which, if closed, could be used to pay for extending benefits, health care subsidies, and job creation for the unemployed. And now the biggest players in Democratic politics are taking aim at them.
“I don’t know how you explain to the nurse struggling to pay her mortgage or the security guard whose son can’t afford college that they should pay higher taxes than Wall Street hedge fund managers and venture capitalists,” SEIU spokesperson Lori Lodes tells me. “They see what’s happening in their communities – states cutting back vital services, more of their neighbors losing their jobs. What they will never be able to understand is Senators holding up a needed jobs package because they want to look out for money managers.”
The senators she’s talking about are almost all Democrats–including John Kerry (D-MA), Bob Casey (D-PA), Jeanne Shaheen (D-NH), Mark Warner (D-VA), and Maria Cantwell (D-WA), who actually voted against Wall Street reform for not doing enough to rein in financial industry excess.
They’re now trying to prevent Senate Finance Committee Chairman Max Baucus from closing what’s known as the “carried interest” tax loophole. That loophole allows managers at private equity funds, venture capital funds, real estate partnerships, oil and gas partnerships, and even some hedge funds to treat much of their compensation as capital gains, subject to a low 15 percent tax rate–significantly lower than it would be if it were treated as ordinary income. These managers oversee long-term investments for third parties, and yet their income is treated as if they had a direct stake in the investments’ success or failure, which they do not.
Their opposition leaves the extenders package without the money needed to pay for it. And that has major unions, including SEIU and AFSCME furious at those Democrats.
Cantwell, whose constituents include major venture capitalists, defended her position to the Huffington Post this week. “I think there’s a difference in the business models between venture capital, people who do job creation and lose money for a whole long period of time, sometimes as many as 18 or 20 years, and people who just make money because they’re financial engineers,” she said. “I’m a little tired of the financial engineers, the people who are just making money off of money, telling everybody here what to do, versus people who actually make a product or a service.”
The House has already voted three times to close the loophole. And some of the Democrats who defend the loophole say they’d be satisfied if venture capitalists were carved out if the loophole is closed. But so far, that hasn’t been enough to allow the extenders package to move forward.
