’08 Campaign’s Next Big Issue: Hedge Fund Taxes

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There’s an upcoming issue that will test the principles of the Democratic presidential candidates. From Politico:

On the merits, this specific proposal — which is part of a larger, ongoing re-examination by congressional tax writers of the way Wall Street is treated — should not be a close call for a progressive leader courting union leaders and activists in Iowa and New Hampshire. It would correct an outrageous loophole that enables hedge fund and private equity managers to have their eye-popping profits (known as “carried interest”) taxed as capital gains instead of income.

The net effect of this is that billionaires are getting taxed for their work at a lower rate — 15 percent, instead of the top income bracket of 35 percent — than the men and women who clean their offices, drive their cars and tend their gardens.

But when billions of dollars are at stake, the calculus is rarely that simple. Particularly when the billions are being taken away from a group of donors the Democratic Party is literally banking on for a competitive edge in the all-important financial arms race with the business-backed Republicans…

Favoring a fairer tax on hedge fund managers would very directly hurt any Dem’s pocketbook: three-quarters of the $1.1 million that hedge fund managers contributed in a single quarter went to Democratic candidates. It’s safe to say that anyone who supports doubling the taxes of these folks will be cut off from the money trough.

Politico frames this as an issue most important for Edwards, because he has focused most on bridging the gap between the rich and the poor in America, and because he needs campaign money the most dearly of the top three Democratic candidates.

I agree that it’ll be interesting to see what Edwards does on the issue — Politico recommends that he make it a central part of his campaign, because the loss of campaign cash will more than be made up for by the positive press and character points — but I’m more interested in seeing what Hillary Clinton does. She’s the most business-oriented of the Democratic candidates, and cares most about tending to her donors. Will she take the populist route, or will she disappoint yet again?

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