Ed note: The following floor speech was delivered by Senator Carl Levin (D-Michigan)
The Republican leaders demand [a] sacrifice be made by the middle class in order to protect the Bush tax cuts and other tax breaks for the wealthiest among us – despite the huge and growing gap in the distribution of income in our country between the wealthy and the middle class.
Just one example of the kind of tax breaks and tax loopholes we Democrats seek to change is the unconscionable tax break given to hedge-fund managers. Hedge fund managers generally make their money by charging their clients two fees. First, the manager receives a management fee, typically equal to two per cent of the assets invested. Second, the manager typically receives 20 per cent of the income from those investments above a certain level. This 20 per cent share of the investment returns from hedge funds is known as carried interest. Under current law, most hedge fund managers claim that this carried interest qualifies as a long-term capital gain, currently subject to a maximum tax rate of 15 per cent, rather than being taxed as ordinary income, currently subject to a maximum tax rate of 35 per cent.
But a moment’s analysis shows that this money is ordinary income by any fair definition and should be treated that way. The 20 per cent fee is not capital gains, because it applies not to capital that the hedge-fund manager has invested, but to the payment he receives for investing capital that other people provide. Pretending that the 20 per cent fee is capital gains when in fact it is payment for a service is an Alice-in-Wonderland argument that elevates fiction over fact…
Mr. President, we must raise the debt ceiling. This is not an opinion; it is fact. The consequences of failing to act are simply too catastrophic to consider any other course. Negotiations are now under way seeking an agreement to raise the debt ceiling as part of a larger agreement on deficit reduction. But there is a major obstacle to agreement: A refusal on the part of our Republican colleagues to compromise, a refusal to understand that sacrifice must be shared.