Schumer-Rangel Tax Hike

Senator Dole once quipped that "the most dangerous place in Washington is between Senator Schumer and a television camera," but it's starting to look like the most dangerous place is between Mr. Schumer and your back pocket. Mr. Schumer had been opposing a scheme percolating in the Senate to raise the 15% tax rate that applies to "carried interest" held by certain wealthy hedge fund, private equity, and venture capital tycoons because he feared it would single out so many big donors to the Democratic Senatorial Campaign Committee that he chairs. But it turns out — he announced this week — that he wants to rectify this attack on the leaders of the home town industry in New York by a tax hike that would "spread the pain" so that the higher tax would also be paid not only be big real estate investors but also by the energy tycoons in the corn-fields of one of the senators who started this nonsense, Charles Grassley.

Mr. Schumer has been trying to foster the impression that his position was different from that of the chairman of the House Ways and Means Committee, Charles Rangel, who was not the initial proponent of raising the tax rate on carried interest but who, together with Rep. Sander Levin, the Michigan Democrat, has become the most aggressive proponent of it. Messrs. Rangel and Levin have co-sponsored a bill that would raise the current tax rate of 15% that applies to carried interest compensation to the 35% that applies to earned income — that is, to the same top tax rate that applies to the wages of high earners. Rangel and Levin do not distinguish between fund managers and energy and real estate investors.

They also do not distinguish between private partnerships and partnership which go public on the New York Stock Exchange, such as the Blackstone Group or Fortress Investments Group. In the name of equality and leveling up, Messrs. Rangel and Levin want a 35% tax rate for everyone. Now, as Russell Berman reported in these pages, Mr. Schumer has announced that he is preparing legislation that goes beyond what even the Rangel Levin bill does and could apply 35% to carried interest in partnerships across the board. Some of Mr. Schumer's big financial donors in the hedge fund community are trying to palm off on whoever will listen the idea that Mr. Schumer is just advancing this legislation as a poison pill to trigger more widespread opposition.

But the smart money is on the notion that Mr. Schumer is simply prepping the ground for the way for broad and invasive tax increases that are as certain to come if a the Democrats prevail in 2009. That is what Democrats do for a living — they raise taxes. And their plan is to raise them to pay for "repealing" the Alternative Minimum Tax that Congress supposedly never meant to apply to more than a tiny handful of ultra-rich tax dodgers but that will soon effectively apply to large numbers of actual voters — indeed to vast numbers of middle class, two-income families with children and a house in the environs of New York City. It now looks as though Mr. Schumer is far from trying to block Mr. Rangel's plan. He is advancing exactly the same plan, to the detriment of New York City and our waning status as a global financial center.