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Funded by the Funds

By Matthew Yglesias  

"Funded by the Funds"

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Part of Barack Obama’s budget is his plan to go after the special tax break enjoyed by hedge fund and private equity fund managers. This is an obvious idea, since there’s no good reason for this special treatment. But it didn’t manage to get done last year because Republicans love rich people and this particular class of rich people has given a lot of money to a few key Democrats. Indeed, Tom Edsall’s article on the subject includes these charts showing the Democrats are the main beneficiaries of the fund managers’ largess:

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One noteworthy thing about this is that these guys weren’t just following the political winds and backing the majority party. It’s typical for Democrats to do well with certain industries when they’re in power, but not-so-well when they’re out of power. But these guys were Democrat-friendly even through the lean years. Thus:

When the hedge and private-equity fund industries faced a similar challenge to their capital gains tax break in 2007, most of them entered the ring expecting defeat, only to emerge victorious. In addition to campaign contributions, the individual companies and their trade associations sharply escalated their lobbying activities, pulling out the stops to beat back the tax reformers. [...] One of the factors working to the funds’ advantage is that the Senate Finance Committee works in mysterious ways, unexpected decisions abruptly emerging from private deal-making that can radically transform the impact of tax legislation. Anyone assuming that the special treatment of hedge and private-equity fund managers will be scrapped by a populist Democratic majority should hold the champagne until Obama signs the bill into law.

Of course the wild car here to some extent is the Republicans. I thought the quiet death of hedge fund loophole repeal during the last congress would have been a great opportunity for the GOP to steal a bit of the Democrats’ populist mojo while at the same time punishing a class of people who mostly finance the opposition. Certainly that political tactic would have seemed more likely to broaden the parties appeal than a lot of “Joe the Plumber” antics. And it would have been better for democracy, too. You need real competition between the parties.

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