Cutting Them a Break

Thursday, October 11, 2007

DEMOCRATS like to boast that they are the party that worries about the middle class while Republicans lavish tax goodies on the rich. So a juicy tax break enjoyed by a select group of the wealthiest Americans would seem to be a natural target for Democratic lawmakers. The break, known as "carried interest," allows managers of hedge funds and private-equity firms to pay a 15 percent tax rate on a large portion of their compensation, not the 35 percent top rate for ordinary income.

Eliminating this loophole could bring in several billion dollars a year. But congressional Democrats, it turns out, are too busy to get around to closing it. As reported by The Post's Jeffrey H. Birnbaum, Senate Majority Leader Harry M. Reid (D-Nev.) has quietly passed the word to those opposing the change that they can relax: Nothing will get through the Senate this year.

Of course, Mr. Reid's office says, this has nothing to do with the army of lobbyists that the industry has deployed to protect its cushy deal. Of course, it has nothing to do with the industry's generous campaign contributions to Democratic candidates and committees, which have been dramatically stepped up since the carried-interest fight began.

Those denials, though, didn't sound particularly convincing to two of the leading presidential candidates -- from Mr. Reid's own party.

"If there was ever a doubt that Washington lobbyists don't actually represent real Americans, it's the fact that they stopped leaders of both parties from requiring elite investment firms to pay their fair share of taxes, even as middle-class families struggle to pay theirs," said Illinois Sen. Barack Obama.

"Today, America learns another striking example of how broken Washington is," former North Carolina senator John Edwards said in a statement. "Congress' failure to [close the loophole] is testament to the terrible power that lobbyists have to stop real reform."

It makes you wonder: Are the Democrats the party of the Baileys, the imaginary middle-class couple described by Sen. Charles E. Schumer (D-N.Y.), or of the Blackstone Group, the private-equity firm that paid Ogilvy Government Relations $3.74 million this year to help forestall the change? Mr. Reid's action, or inaction, suggests the answer.


© 2007 The Washington Post Company