Obama Pleases Liberals With Bid to Hike Hedge Fund Tax

Obama finally punched Republicans in the face in the debt talks. Eric Alterman on his attack on hedge funders and corporate jets—and why his own party could stand in his way.

Charles Dharapak / AP Photos

Liberals finally got the Barack Obama they’ve wanted for the past 30 months at Wednesday’s presser and the response has been, well, silent.

Obama scored congressional Republicans for demanding “tax breaks for millionaires and billionaires, tax breaks for oil companies and hedge-fund managers and corporate-jet owners,” and announced: “ Before we ask our seniors to pay more for health care, before we cut our children's education, before we sacrifice our commitment to the research and innovation that will help create more jobs in the economy, I think it's only fair to ask an oil company or a corporate-jet owner that has done so well to give up that tax break that no other business enjoys.”

Sounding as if he were channeling Bernie Sanders—instead of his usual Dale Carnegie routine—Obama returned to this theme over and over, adding at one point, “I think it would be hard for Republicans to stand there and say the tax break for corporate jets is sufficiently important that we are not willing to come to the table and get a deal done” as if that were the key issue separating the two sides and threatening to throw the U.S. government into default. Most reporters focused on the theater and What It All Meant. The instant consensus was the president was giving up on actually achieving a deal with Republican congressional leaders and was now focusing on the “end” or rather blame game (and “being a dick” in the process). Washington Post fact-checker Glenn Kessler focused on the disparity in the numbers. The Obama White House says it wants to find $400 billion in new revenue, but a corporate-jet tax is not going to make much of a dent in that figure. He suggests it might yield $3 billion over 10 years. and certainly should not be paired with the student-loan program, which runs about $42 billion a year.

As for going after Greenwich, well there is real gold up in Hedge Fund Hills, and taxing the managers’ earnings the way the rest of us are taxed could mean as much as $15 billion over 10 years—and indeed, the House has already voted in favor of doing just this last year. But it’s not easy to do. CNBC’s John Carney explains that these smart rich folk would avoid the tax: “Instead of granting the manager a carried interest in the fund, it would be simple enough to recharacterize the whole thing as a loan transaction.” And the corporate-jet lobby gave us the same “blah, blah” response that any lobby gives whenever their sweetheart deals are discussed. "General aviation aircraft are used by businesses of all sizes to generate opportunities and create growth, often in communities that aren't easily accessible through other means," said Craig Fuller, CEO of the Aircraft Owners and Pilots Association. "The use of GA aircraft creates and sustains thousands of American jobs…”

Let us grant the point that these two cuts are not going to make much of a dent in the deficit. I’d be willing to go even further: they are not going to happen. They are precisely the kinds of images upon which Obama must focus if he wants to make the differences between the two parties meaningful to most Americans. Corporate jets are not only just about the most environmentally destructive manner of travel in the history of humankind, they are also a rich (and largely ignored) source of political corruption in our political system. The idea of “flying commercial” is, to committee chairs and the like, about as attractive as a proctology exam. Corporations lend their planes to senators and representatives who pay only a fraction of the cost of the travel. They get to lobby them on the way and make friends for future votes. This is a massive campaign contribution that goes unrecorded by the system and is available only to the wealthy and powerful (and Laurie David). It’s for this reason, as well as the usual ones, that they get a pass on Capitol Hill.

As for the hedge funders, well, the recent kerfluffle over the “Daniel” dinner notwithstanding, let’s not forget who’s funding the Democrats. As Thomas Edsall reminds us, Democrats could not pass this provision when they were in the majority and probably didn’t want to. “Many Senate Democrats saw the legislation as biting the hand that fed them and breathed a sigh of relief when,” Edsall writes, “on December 6, 2007, Republicans mustered enough votes to filibuster the proposal to death.”

Leading the opposition to his own party’s attempt to try to ensure that fund managers paid the same tax rate as their secretaries, janitors, and gardeners, was New York’s own champion of the little guy, Charles Schumer, who was then the extremely Wall Street friendly member of the Banking and Finance Committees and vice chair of the party conference, as well as a former chair of the Democratic Senatorial Campaign Committee. I got the chance to put Schumer on the spot on this exact issue around that time when we both attended a $1,000-per-person Hillary Clinton fundraiser at the insanely enormous Hamptons home of gazillionaire Ron Perelman. (I was there, gratis, I promise.) Was it fair, I queried my senator, that our host paid a far smaller portion of his earnings in taxes than did the waiters and waitresses serving us the stuffed canapés? Schumer, angry at me already for other reasons, was close to furious about being asked such a question. He had an answer, though: He said it would be fair to tax hedge-fund billionaires at the normal rate only if we did other partnerships, like lawyers. In other words, it was a question of fairness only to the wealthy. Working stiffs like the waitstaff around us did not even enter into his calculation.

That’s the way it works in American politics today, and the “hope” of getting rid of such cozy and corrupt arrangements was exactly the “change” that so many millions of Americans had in mind when they put their faith in candidate Barack Obama. On Wednesday, however briefly, that fellow was back in business.Let’s see if he means it. And let’s see if it’s too late.