Maria Cantwell was a bit of a hero yesterday for making the Senate continue to work on Wall Street reform, but news that she is fighting efforts to close a tax loophole that benefits money managers--a necessary revenue raiser for the upcoming unemployment extension and jobs bill--brings her right back down to regular politician status.
She's not alone, John Kerry and Patty Murray have joined her. Here's the deal:
Two Senate Democrats, John Kerry (D-Mass.) and Maria Cantwell (D-Wash.), are pressing Finance Committee Chairman Max Baucus (D-Mont.) to treat certain fund managers different than others. Last week, Baucus agreed with House Ways and Means Chairman Sandy Levin (D-Mich.) that the "carried interest" loophole would be closed to pay for a jobs package of unemployment benefits, tax extenders.
The jobs bill promises to be a classic struggle between the haves and the have nots, which the Senate will debate once Wall Street reform is finished. It will pit money for job creation, unemployment benefits and health care subsidies for the jobless against special tax breaks for money managers. The Democratic in-fighting clouds the message the party is hoping to send....
The carried interest loophole is a special tax deal for executives of investment partnerships, including real estate, private equity and some hedge funds, that currently allows those fund managers to receive their compensation as a long-term capital gain, which is only taxed at 15 percent, far below what they would pay otherwise in their tax bracket. Closing the loophole would still allow investors to pay the capital gains tax and is only targeted at people who pretend to be investors but are, in reality, being compensated for a task and being paid income.
Cantwell and friends are lining up on the side of special tax breaks for money managers. The guys who pay only 15 percent tax on this income--less than what their clerical staff pays in income taxes. We finally get to a point where Dem leaders, including Baucus, agree that extending unemployment benefits is necessary. That agreement was conditioned on finding a way to help pay for it and closing this major loophole has the agreement of House and Senate leadership have found. And now a handful of Dems are jeopardizing it.
Making the politics of the Dems' position even worse, David Dayen reports that Republicans Snowe and Collins "have no objection to closing the carried interest loophole to pay for the legislation." It could easily pass with their support.
This isn't just about extending unemployment insurance to the millions of jobless who would otherwise be dropped off of the rolls. The bill also extends COBRA health insurance benefits for the unemployed, provides funding to states under the Temporary Assistance for Needy Families (TANF) Emergency Fund that helps provide jobs to low-income families. It also includes more money for the Federal Medical Assistance Percentage (FMAP) that shores up Medicaid funding--funding that is critical for states straining to keep people covered during this recession.
This is an essential effort for the have-nots, and Cantwell et al. are standing in its way on behalf of the haves. SEIU spokeswoman Lori Lodes nailed it:
Spokewoman Lori Lodes to HuffPost Hill: "How do you explain to the nurse or 911 operator or teacher - who are all struggling to pay their mortgages right now - that Wall Street hedge fund managers or venture capitalists are the ones who will get a special tax break. Their states are cutting back on services and their neighbors are losing their jobs. But somehow Senators have decided to hold up a jobs package because they want to keep a tax loophole for money managers. Never could that make sense."
It doesn't make sense.