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'08 Democrats Grapple With Tax Issue

July 12, 2007 7:15 PM

ABC News' Raelyn Johnson reports: The leading '08 Democratic presidential candidates are grappling with their positions on tax measures proposed in Congress that would raise taxes for the very people who have been contributing to their White House bids -- hedge funds, private equity firms and their managers, many of whom who are billionaires.

The New York Sun reported Thursday that Senator Barack Obama, D-Ill., for the first time, is joining with his '08 Democratic rival former Sen. John Edwards, D-N.C., in calling for hedge funds and private equity firms that go public to pay higher taxes.

According to the article, Obama's spokesperson said Obama has asked to co-sponsor legislation that would tax publicly traded private equity partnerships and hedge fund firms as as corporations.

However it isn't clear whether Obama supports a more controversial measure that would raise taxes for the managers of these firms. So far, Edwards is the only '08 Democratic candidate who has come out firmly supportive of both congressional efforts.

Congress is currently debating the issue of hedge fund taxation, with measures introduced in both the House and Senate.

The so-called Blackstone Bill would force hedge-funds and private equity firms that go public to be taxed at a corporate rate -- 35 percent. The bill would close a loophole that allows the loosely regulated industry to sidestep billions of dollars in taxes. Currently they pay taxes at a 15 percent capital gains rate.

Congress is also debating more controversial legislation that would raise the tax rate of the titans who manage these firms. Currently they pay only 15 percent tax on the personal profits they make from the investments they make -- investments that are mostly other people's money or assets. Many in Congress want to tax this money as earned income -- around 35 percent, rather than the lower, 15 percent rate for investment income.

The issue is starting to heat up on the '08 campaign trail.

Earlier this week, Edwards reaffirmed his support for both congressional measures. 

"You want to know what I mean by Two Americas? A tax code that lets hedge fund and private equity managers making hundreds of millions a year pay taxes at a lower rate than their secretaries is wrong."

Edwards, who is running on a platform of lessening the gap between the rich and the poor, said in a statement released Wednesday, "building one America means getting rid of loopholes like the one that lets these investment advisers treat most of their compensation as capital gains."

Edwards' position puts him at odds with an industry he was once a part of and profited from. Before his '08 White House bid, Edwards worked as a consultant for a hedge fund -- Fortress Investment Group --and was paid a salary of nearly $500,000.

Senator Hillary Clinton, D-N.Y., has yet to take a definitive position on the matter.

"Senator Clinton believes there are broad concerns surrounding private equity in relation to the rest of the market," Clinton's press secretary told ABC News last month when pressed for her position on the issue.

Both Democratic and Republican candidates have received campaign donations from the security and investment industry. According to an analysis of Federal Election Commission data by the Center of Responsive Politics, Democratic and Republican presidential candidates have received nearly $10 million from securities and investment firms during the first three months of their '08 campaigns.

July 12, 2007 in Tancredo, Tom | Permalink | User Comments (7)

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