Friday, July 13, 2007

Overnight With the Shrill One

Krugman:

During the 2000 presidential campaign, Ralph Nader mocked politicians of both parties as “Republicrats,” equally subservient to corporations and the wealthy. It was nonsense, of course: the modern G.O.P. is so devoted to the cause of making the rich richer that it makes even the most business-friendly Democrats look like F.D.R.

But right now, as I watch Senate Democrats waffle over what should be a clear issue of justice and sound tax policy — namely, whether managers of private equity funds and hedge funds should be subject to the same taxes as ordinary working Americans — I’m starting to feel that Mr. Nader wasn’t all wrong.

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.