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K Street

Jeffrey Birnbaum
Washington Post Staff Writer
Tuesday, October 9, 2007 1:00 PM

K Street columnist Jeffrey Birnbaum will be online to discuss the intersection of business, politics and government on Tuesday, Oct. 9, at 1 p.m. ET.

A list of Birnbaum's columns can be found here.

A transcript follows.

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Jeffrey Birnbaum: Hello everyone. Thanks for writing in. It looks like there are a goodly number of questions today. In addition to my column today, I also have an A1 story about private equity firms facing a reduced threat of a tax increase this year. We can talk about either of those things, or anything else that's on your mind. Please write early and often. Let's get started.

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Fairfax, Va.: What is behind the news in The Post this morning that the Democrats aren't going to fight to increase the tax rate for wealthy investors as they said they would? Is it too much Republican opposition or are the Democrats themselves too scared to fight?

washingtonpost.com: Buyout Firms to Avoid a Tax Hike (Post, Oct. 9, 2007)

Jeffrey Birnbaum: Thanks for the question. I bet I'll get a few like it this afternoon. I don't think that, in the Senate at least, neither Republicans nor Democrats are eager to take on so complicated a topic as private equity firm taxation. I bet not many senators even know for sure what private equity is. They are also reluctant to anger so wealthy a group of people. Money is the mother's milk of politics after all. A third reason: there is an honest disagreement about whether it's a good idea, or good tax policy, to change a tax rate so radically compared with how the rate has been for so long.

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Boston: When a Democratic president comes in the private equity folks victory won't mean anything. Their taxes are going up and others too. Don't you agree?

Jeffrey Birnbaum: I do think that if a Democrat wins the White House and if Congress remains in Democratic hands that the chance of a major tax increase, including on private equity managers and other high-income people, is much higher than it is today. What Charlie Rangel of the House Ways and Means Committee is talking about, "the mother of all reforms," is much more likely to become law in 2009 than in 2007 or 2008. I'm far from alone in that assessment.

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Texas: Is immigration really dead? I keep hearing that Congress will come back to it and make a difference before too long. Who's right on that?

Jeffrey Birnbaum: I am guessing that you are asking if the immigration legislation is dead. Clearly immigration is alive and well. Too well for some people's taste, especially in the Republican Party. That (very bad) joke aside, I do not foresee Congress wading back into the immigration swamp either this year or next. When Bush's comprehensive plan died last year, I think it went away for good. It's just too contentious an issue that produces nothing but grief for members of both parties. The closer politicians get to elections, the more risk averse they become.

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Washington: Will the new ethics laws increase the number of lobbyists? And, will it increase the amount of campaign contributions from lobbyists? I think the number of lobbyists will fall and so will donations.

Jeffrey Birnbaum: You might be right, but I'm guessing the other way. On both. I don't see how the ethics rules would discourage growth in lobbying. So much of lobbying is not of the access kind--the kind that the new lobbying law impacts most. So I see continued growth in grassroots lobbying in particular, as well as in research, public relations and advertising. As for campaign donations, I bet the new rules that unmask bundlers of checks to lawmakers will lead to a competition. Who is the biggest bundler? The title will be vied for in certain circles in town.

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Washington: Suppose a professional relationship grew into a personal one - I'm sure it happens all the time: How would a lobbyist or staffer legally prove to the ethics committee that they truly are friends? Do they never host each other at home for dinners, for example? Do they need to document that they have things in common besides work? If they do eat at each others houses, is the menu limited to Hamburger Helper?

Jeffrey Birnbaum: Your questions are very good ones. The short answer is that lobbyists must be very cautious about giving anything of value to congressional folks. Better to ask the ethics committees and seek waivers and opinions, or to ask lawyers in town who have become expert in these matters, before pursuing a friendship (including meals etc.) with a government employee. The rules are tough and violations of them could lead to jail time, for the first time. That's serious stuff.

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Concord, N.H.: Is there no pre-existing relationship or "personal and private" exception in the new gift rules? We have ridiculously strict rules here in NH, but at least we have an exception for gifts of a purely private and personal nature.

Jeffrey Birnbaum: Yes there are such exceptions. But it would be wrong of me to pretend that I'm an ethics lawyer and to tell you in this chat what they are exactly. Even my lead item this morning about the engagement ring has created a real ruckus. There are various interpretations of things flying around out there. But here's the short answer to your question: if you claim a pre-existing relationship with a government employee, and that the gift ban shouldn't apply, you need to be very very sure that the relationship has existed for a long time and is mutual.

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Bow, N.H.: Isn't the real problem with taxing carried interests as capital twofold: (1) the spread that has arisen since 1986 between marginal tax rates on ordinary income (e.g., wages) and long-term capital gains (now some 20 percentage points, as you note -- there was rate parity after TRA '86); and (2) FICA/SECA, which impose an extra 2.9% tax on wages (for those amounts over the Social Security earnings cap -- about $98,000)? The Levin bill tried to do this through a back-door to treat the income attributable to certain "tainted" carried interests as ordinary income, but the partnership tax rules make that extremely difficult as a technical matter. Couldn't we achieve the same result with rate parity (and unified budgeting to eliminate FICA/SECA altogether)?

Jeffrey Birnbaum: I don't think that's the "real problem," at least not the one that lawmakers are considering in Congress. That may be a problem, but the question being discussed is whether the capital gains rate should apply to people who do not, for the most part, put their capital at risk, but rather their work effort. So far the answer is yes. Several Democratic leaders in the House say the answer should be no.

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Reading, Pa.: Jeffrey: I would like your opinion on how tarnished the U.S."brand" is. As a small business person, I have found it has become increasing difficult to do business internationally. There is a growing anti-Americanism that I don't hear mentioned very often.

Jeffrey Birnbaum: Polls indicate that you are correct. For reasons that include our foreign policy, particularly in Iraq, lots of countries in Europe are not big fans of the U.S. The low dollar, however, should push that anti-Americanism aside pretty soon, because buying things in the U.S. is so cheap for most foreigners these days.

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Alexandria, Va.: In your article today, "Buyout Firms to Avoid a Tax Hike" you repeatedly refer to a tax hike, a tax increase, a more-than-doubling of the tax....but aren't we talking about ending a tax BREAK that has actually allowed these individuals to pay a much lower rate than everyone else by misclassifying their income?

Closing a tax loophole is very different from a tax increase. A good headline might have been: Million Dollar Lobbying Effort Pays Off, Loophole Stays Open for Wealthy Fund Managers

Jeffrey Birnbaum: I make it my business not to use loaded words and phrases. Taxes go up or they go down. A break (or a loophole) is something that no one should ever have. In other words, using that word takes a side in the debate. I try (not always successfully) to avoid taking sides. Straightforward answers may not please either side of an argument, but it generally doesn't anger them either.

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Anonymous: Can columnists accept gifts ? What have you really been wanting for your birthday this year ?

Jeffrey Birnbaum: Sweet of you to ask. Please send anything that you're tempted to send to the most worthy charity you can find.

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Washington: Do you really think many lobbyists will go and ask the ethics committee about a pending wedding? I doubt it.

Jeffrey Birnbaum: I don't doubt it. I believe that such requests are made routinely, and that kind of caution seems like a very good idea these days.

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Pittsburgh: When does all this ethics stuff take effect? Isn't there a delay of some sort so lobbyists can get around a lot of what's been just passed.

Jeffrey Birnbaum: I think some items may be delayed, but for the most part the ethics law is operating as we chat.

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New York: It is possible that Congress could act this year to increase taxes for private equity managers? The House could pass a bill and the Senate could accept it, no matter what Harry Reid says. Lobbying is not over at all.

Jeffrey Birnbaum: I guess there is that possibility. And I acknowledged that in the body of the story. But without support of the Senate's majority leader, and an obvious reluctance in the Senate Finance Committee, the chances of a successful new law that increases taxes on private equity managers (carried interest) are extremely small this year. That was the point I was making in the story. Next year, everything could change. And the year after that. But that's the way it is with legislation. Nothing is ever over. What I was recording was a major turning point in the debate.

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Olney, Md.: What makes a tax on rich people such big front page news? Who really cares.

Jeffrey Birnbaum: Well it looked this morning like a lot of people cared. The story was at least for a while the most e-mailed story on washingtonpost.com.

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District: So, the Democrats are in bed with Wall Street. That's no surprise. That's the way it's always been and always will be.

Jeffrey Birnbaum: Well, I think Wall Street is pretty bipartisan. It is unusual in business because it is that way; more Democrats than in corporate America for instance. I don't know if it's always been that way, but that's the way it's been in recent years. There's money on Wall Street for every type of politician. That's how power works I'm afraid.

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Sacramento, Calif.: The Democrats are backing a lot of advertising to try to persuade Republicans not to vote with Bush on SCHIP. Does that sort of thing work and will it work this time?

Jeffrey Birnbaum: You are referring to the children's health bill that Bush has vetoed and that the Democrats want to override. The advertising is being targeted into the districts of Republicans that the Democrats think might switch their votes if pushed. The idea is to drum up public support for Democrats' position and against Bush's. Will it work? We'll find out later this week or next week when the override votes happen on Capitol Hill. In general, advertising campaigns can work and sometimes do, but not always. A lot of money is often wasted on these expensive types of campaigns.

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Washington: What chance do you think Charles Rangel has to pass the "mother of all reforms" this year, as he says he wants?

Jeffrey Birnbaum: I don't think the chances are very strong. I keep hearing that the House Democratic leaders are less than enthused about taking on so many interests and exposing their party to the old "tax-and-spend" label of the past. I suspect that's why we haven't seen the big bill move through Ways and Means yet. Anyone think I'm wrong here?

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Miami: With all the retirements lately, is there any chance that the Republicans can gain seats in the Senate or to get the majority back?

Jeffrey Birnbaum: Anything is possible in politics. At the moment, your scenario looks doubtful. Many more Republican-held seats are up for grabs in 2008 than Democratic-held seats and Republican incumbents are retiring at a disheartening clip for the GOP.

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Philadelphia, Pa.: Do you really think lobbyists will listen to the new ethics rules? They never did before and I know some people in the profession.

Jeffrey Birnbaum: I think they will listen more than in the past. Violation of the rules is subject to stepped up civil penalties and also, for the first time, criminal sanctions. Read: prison time. Going to prison is generally not good for someone's career.

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Wheaton, Md.: In recent months your newspaper has invited two embarrassingly unqualified commentators to editorialize that global climate change is basically nothing to worry about (a conclusion that runs 180 degrees counter to that of the mainstream scientific community). Advice columnist Emily Yoffe - a self-described "math moron" - has zero credentials in climatology, and economist Bjorn Lomborg's work has been cited for academic dishonesty. Meanwhile, I've not seen an actual scientist with peer-reviewed publications in climate research invited to write. Does it bother Post staff that when it comes to commentary on scientific issues your paper is now viewed as being on par with borderline tabloids like the Washington Times?

Jeffrey Birnbaum: If we waited for scientists with peer-reviewed publications to write for us, we'd never have anything in the paper. Opinions can be voiced by lots of people. And those opinions are not always shared. That's what an open democracy and press freedom are all about. Demanding that only people with certain qualifications write on certain subjects would be demeaning to millions of Americans. Disagreeing with opinion writers is one of the best things about our wonderful system.

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Jeffrey Birnbaum: Thanks for writing in. We covered a lot of ground today. Let's do it again in a couple week. Thanks and cheers!

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