Liberals for Hedge-Fund Manager Rights

Feeling like you haven't been disappointed by a Democrat in too long? Well let me help you with that. One of the suggestions that has been floated as part of a deal to reduce the deficit is the elimination of the "carried interest" loophole. It works like this: If you're a hedge-fund manager, you make your money by taking 20 percent of the profits of the fund you manage. This can be a lot of money -- hedge-fund king John Paulson made over $5 billion last year. But unlike the little people, hedge-fund managers don't pay federal income taxes on that income. It's considered "carried interest" and taxed as capital gains, which means Paulson would pay only a 15 percent marginal rate on his income. That's why, as Warren Buffett is fond of pointing out, he pays a lower tax rate than his secretary.

And the other day, we learn from Ben Smith, two Democrats in the House -- Jared Polis and Mike Quigley -- sent a letter to President Obama begging him not to close the carried-interest loophole. "Such a tax increase," they wrote, "would not only damage our already fragile economic recovery, but it would also cripple the spirit of innovation and entrepreneurship that makes our country so strong." Indeed: If hedge fund managers paid the same tax rate on their income as people who get paid wages, how could our country's spirit of innovation survive?

I don't know anything about Quigley, so I'll restrict my remarks to Polis. Elected in 2008, he's a member of the Progressive Caucus and known as a left-winger. He wants to end federal marijuana prohibition. He represents Boulder. He's gay. He's also really rich -- on the order of a couple hundred million dollars in net worth (dot-com money) -- but as Robert Frank described him in 2007, "Rather than using government as a tool to cut taxes and boost his personal fortune, he's using his personal fortune as a tool to change government. The changes he seeks are aimed at lifting up the underclass, rather than providing further support for the overclass. Or at least that's the way he puts it on the campaign trail."

I'm sure that on most economic issues, Polis is going to side with the little guy. But obviously not always. So you could argue that he demonstrates the way the scale in the Democratic Party is tipped toward social liberalism and away from economic liberalism. It isn't just the presence of across-the-board conservatives like Ben Nelson in the party that forms this picture, it's also the presence of people like Polis, for whom social issues are non-negotiable, but who might also take time from their day to stand up for the interests of oppressed hedge fund managers.

And this isn't going to change anyone's view that Polis is a liberal. He would no longer be described that way if he came out in favor of restrictions on abortion, but a dance over to the Republican side on taxes isn't going to bear on the way people think about him ideologically. I'm sure if someone asked Polis, "Why should a plumber or a teacher or a factory worker pay a higher tax rate on their income than a hedge fund manager pays on his?", his answer would make you think you were listening to a conservative Republican talking. But the fact that he's still considered not just liberal but very liberal tells you a lot.