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