Conservative Class Warriors, Continued»

Our guest blogger is Robert Gordon, a Senior Fellow at the Center for American Progress Action Fund.

In a nice sequel to Bob Novak’s proposal that John McCain cut the payroll tax, Bill Kristol today writes that McCain might “suggest taxing ‘carried interest’* as ordinary income, if only to watch the fur fly among hedge-fund fat cats.”

This is a good idea that conservatives hated less than a year ago. Grover Norquist said “it’s crystal clear” that taxing carried interest “violates the Federal Taxpayer Protection Pledge.” Paul Weyrich called the idea “a huge tax increase.” And the Club for Growth said it was a “tax hike” and a “war on prosperity.”

John McCain has waffled on “no new taxes,” but he has regularly said that he won’t propose any tax hikes. Under the standard conservative definition, this is a tax hike. Yet Kristol is urging him to consider it…. probably because McCain’s true conservative tax plan will be spectacularly unappealing for most voters.

More gymnastics to come.

*Carried interest is the share of profits that is earned by a hedge fund manager without a corresponding ownership stake in the hedge fund. Carried interest is usually the manager’s core compensation, but it is taxed at the lower capital gains rate, not the ordinary income rate.