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There is a federal tax issue on the table worth highlighting as the Congress goes on vacation. It seems that rich billionaire hedge-fund managers pay lower taxes on their income than most Americans - 15% vs. 30-35% for the average worker. As Paul Krugman has so eloquently highlighted:

What's at stake here is a proposal by House Democrats to tax "carried interest" as regular income. This would close a tax loophole that is complicated in detail, but basically lets fund managers take a large part of the fees they earn for handling other peoples' money and redefine those fees, for tax purposes, as capital gains.

The effect of this redefinition is that income that should be considered by normal standards to be ordinary income taxed at a 35 percent rate is treated as capital gains, taxed at only 15 percent instead. So fund managers get to pay a low tax rate that is supposed to provide incentives to risk-taking investors, even though they aren't investors and they aren't taking risks.

It's a pretty clear-cut case of rich businessmen gaming the system so that they don't have to pay their fair share of the costs of running this country, right? So why on earth would Senator Schumer from New York want to protect this ridiculous windfall to billionaires?

From January through June, the Democratic Senatorial Campaign Committee raised nearly $2 million from executives and employees of private equity and hedge fund firms like the Carlyle Group and the Blackstone Group, according to analyses of campaign finance disclosure reports conducted by the Center for Responsive Politics, a nonpartisan group that researches the influence of money in politics.

Industry executives say they value the role Mr. Schumer plays. John G. Gaine, the president of the Managed Funds Association, the main hedge fund trade group, described the senator as a "critical figure in the debate" and a "guardian of America's capital market and, more parochially, New York's economic interest."

Yup...so there you have it. It's up to Senator Schumer to protect New York's "economic interests."

The New York Times picks it up from there:

Mr. Schumer has been busy with hedge fund and private equity managers, an important part of his constituency in New York. He has been reassuring them that he will resist an effort led by members of his own party to single out the industry with a plan that would more than double the taxes on the enormous profits reaped by its executives.

Mr. Schumer has considerable say on the issue. In addition to being the third-ranking Democrat in the Senate leadership, he is the only Democrat serving on both of the major committees, Banking and Finance, that have jurisdiction in the matter.

And what does Schumer say?

"Unintended consequences often occur when you do major tax work. And you have to be careful," Mr. Schumer said in the interview, held in his office just off the Senate floor.

Give us a break, Senator Schumer!

As Krugman again eloquently states, in a follow-up op-ed:

We're also told that management fees would rise, reducing returns to investors, if the privileged status of fund managers is eliminated - as if someone with a $100-million-a-year hedge fund job would walk away if his take-home pay fell from $85 million to $65 million.

And we're talking about a lot of lost revenue here. The Economic Policy Institute estimates that the hedge fund loophole costs the government $6.3 billion a year - the cost of providing health care to three million children. Of that total, almost $2 billion a year in unjustified tax breaks goes to just 25 individuals.

Look at that statistic: $2 billion a year in unjustified tax breaks goes to just 25 individuals.

And Senator Schumer wants to protect that privileged tax break? Call his office as often as possible to let him know that he needs to do the right thing, or risk getting booted from office by us regular citizens, who work hard and pay our fair share!

Schumer's New York office: 212-486-4430
Schumer's Washington office: 202-224-6542

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