FOR IMMEDIATE RELEASE
October 11, 2007
Today Democratic U.S. Senate Candidate Steve Novick decried recent statements by Senate leaders that will not consider legislation this year to end billions in tax giveaways to equity fund managers, who currently pay a lower effective tax rate than many working Oregonians pay. Private equity fund managers, including some that make more than a billion dollars a year, pay taxes at the 15 percent rate applied to capital gains.
"The Senate's refusal to take up the issue is deeply disappointing, bad policy and bad politics," said Novick. "Perhaps Democrats aren't getting enough credit for their real accomplishments since taking charge, such as increasing the minimum wage or redirecting student loan funds away from private lending agencies. But there are objective reasons that many Americans feel that it's been business as usual under the Democrats. The war goes on. Warrantless wiretapping continues. Now, apparently, we will continue to give a whopping and utterly unjustified tax break to some of the richest people in America."
As the Washington Post reported on Tuesday, October 9, Senate Majority Leader Reid has told equity fund executives and lobbyists the legislation will not be considered this year.
Senate Majority Leader Harry M. Reid (D-Nev.) has told private-equity firms in recent weeks that a tax-hike proposal they have spent millions of dollars to defeat will not get through the Senate this year, according to executives and lobbyists. Reid's assurance all but ends the year's highest-profile battle over a major tax increase. Democratic lawmakers, including some presidential candidates, had been pushing to more than double the tax rate on the massive earnings of private-equity managers, who the Democrats say have been chronically undertaxed.As the Post also noted, equity firms have already spent over $5.5 million in lobbying fees this year – four times what they spent in 2006. And as Politico reported on October 10, the Democratic Senatorial Campaign Committee received $779,100 from employees private equity firms and hedge funds in June – six times their combined total two years ago.
"Frankly, it's hard not to see this as another example of business as usual in Washington – massive lobbyist fees, a flood of campaign contributions and the richest of the rich come out with their tax giveaways safely protected," said Novick. "Oregonians are tired of the D.C. pay to play system where their interests finish last. That is why I'm running for the U.S. Senate: to offer a new voice not beholden to anyone but the interests of the American people."
With normal capital gains, some economists argue that as people are risking their own money their entitled to a lower tax rate. But private equity fund managers invest little or none of their own money. That's why former Treasury Secretary Robert Rubin has said that a "very good argument is to be made for treating it as ordinary income." Or in other words, fund managers are "basically performing a service," rather than earning investment income.
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