Both parties face a dilemma on the carried interest loophole
by David Atkins
Privately, it appears that Republicans may be willing to eliminate one of the most egregious financier loopholes of all time: the carried interest deduction. But only because it would impact big Democratic donors:
Pressed by President Barack Obama to support more revenue increases, congressional Republicans may relent on the carried interest loophole that tends to benefit wealthy Wall Street investors.
Despite the party’s long-standing resistance to tax hikes — particularly after compromising on the fiscal-cliff deal that allowed rates on higher earners to go up — some GOP sources say Republican members might agree to eliminate carried interest deductions because it would primarily affect wealthy Democratic campaign donors. The likely stiff resistance from New York Sen. Charles E. Schumer and other Senate Democrats would be a bonus. Republicans, sources say, are not motivated to protect contributors who have donated millions to their opponents.
Speaker John A. Boehner “can probably offer a carried interest amendment as one tax increase that is warranted,” said a Republican lobbyist with relationships on both ends of Capitol Hill. “If we are forced into a sequester conference that demands taxes, Democrats can screw their big, rich donors.”
A second Republican lobbyist said agreeing to close the carried interest loophole could serve as a GOP concession on taxes in any of the upcoming fiscal negotiations. The loophole allows investors whose earned income is generated mainly from investments to pay taxes according to the capital gains rate, which is significantly lower than the top rate on earned income most of these individuals would otherwise pay.
A golf clap is certainly in order for a Republican Party able to maybe do the the right thing for the country, but only for the most craven and cynical of reasons.
Under normal circumstances it would be well worth watching how certain Democrats vote on the loophole. But sadly we likely won’t get that opportunity, partly as a byproduct of overreach by the pro-austerity crowd. The elimination of the carried interest loophole would almost certainly come packaged with other austerity measures, including chained CPI and other stupid cuts to earned benefits. All any Democrat corrupted by Wall Street would need do is vote against the bill in order to protect hedge fund mangers, while claiming their vote was against cuts to Social Security.
If John Boehner really wanted to put Democrats in a bind, he’d bring the carried interest loophole elimination bill as standalone legislation. But then, Republicans would be on the line with their own base for having raised taxes on heroic job creators.
What a pickle.
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