How does a Republican dare to stand up to Wall Street and propose a tax bill that slaughters some if the industry’s sacred cows?
They stop getting Wall Street money.
At least that’s how it appears it went in Senator Dave Camp’s (R-MI) case.
He is co-authoring a bill with Senator Max Baucus (D-MT) that would raise taxes on financial institutions with more than $US500 billion in assets — so the JP Morgan’s and Goldman Sachs’ of the world.
The bill would also close a loophole called ‘carried interest’ that allows profits from hedge funds and private equity firms to be taxed at a lower 15% rate.
Here’s how Camp described it in an editorial in the Wall Street Journal:
We can clean up provisions like “carried interest” that allow certain private-equity firms to get the investment-income tax rate on what anyone else would call normal wage income. We’ll also put an end to special depreciation benefits related to corporate jets and close, once and for all, the infamous “John Edwards” loophole that allows a select few to avoid employment taxes on their income. The revenue gained from that provision, and many others like shifting to Roth-style retirement accounts for those contributing more than $US8,750 (only 5% of the workforce) can be used to lower tax rates across the board.
It’s a bold move, and outlets like Politico say that it’s dead on arrival to the GOP-controlled House of Representatives.
Still, the bill is still likely to do two ugly things during an election year — cause infighting among Republicans, and allow Camp and Baucus to be as loud about this uncomfortable (for Wall Street) issue as they like.
And Camp has room to raise his voice.
In 2011 and 2012, financial firms were top contributors to Camp’s operation. Private Equity firm Blackstone and its employees Camp’s ranked number two on the list of Camp’s top 20 sources of campaign cash during that time, throwing down $US48,000. Hedge fund Elliott Management, founded by vocal conservative billionaire Paul Singer came in third with $US45,000, according to OpenSecrets.org.
Private equity firm Carlyle Group, JP Morgan, Bank of America, Citigroup, and UBS also made the top 20 in 2011-2012.
In 2013 and 2014, though, Camp’s donor list changed. UBS was the only Wall Street firm that cracked with top 20 donor list with an $US11,000 contribution.
So Camp is free to raise as much hell as he likes on this issue.
And some Wall Streeters may not be mad at him for it. Pershing Square founder Bill Ackman has said hedge fund managers like him wouldn’t mind a carried interest tax hike. In early 2012, he said carried interest is “not as a good a deal” for hedge funds as it is for private equity.
All in all, this is an old dance. Since 2007, Congressman Sander Levin (D-MI) has raised the carried interest issue in the House 3 times. Ultimately, his attempts to raise the rate have always been thwarted in the Senate.
Back in 2010, carried interest was left alone as part of a deal between Obama and Republicans that also continued Bush era tax cuts.
In February 2012 Levin brought the issue up in a bill called the Carried Interest Fairness Act and got shot down.
We’ll see what happens this time.