(Adds Obama comment)
By Kevin Drawbaugh
WASHINGTON, July 13 New York Sen. Hillary
Clinton, the Democratic presidential front-runner, on Friday
urged closing a tax "loophole" that she said unfairly benefits
a few top Wall Street financiers.
Clinton joined other lawmakers in a push to raise the tax
rate on "carried interest" gains made by senior partners in the
booming private equity and hedge fund businesses.
"It offends our values as a nation when an investment
manager making $50 million can pay a lower tax rate on her
earned income than a teacher making $50,000 pays on her
income," said Clinton in a campaign statement.
"As president I will reform our tax code to ensure that the
carried interest earned by some multimillionaire Wall Street
managers is recognized for what it is: ordinary income that
should be taxed at ordinary income tax rates."
Two other Democratic presidential hopefuls -- John Edwards,
a former senator, and Illinois Sen. Barack Obama -- have also
expressed support for raising the carried interest tax.
"We're glad to see Senator Clinton has joined us. We hope
the other candidates will join in our efforts to ensure hedge
fund and private equity managers making hundreds of millions a
year no longer pay taxes at a lower rate than their
secretaries," said Edwards spokesman Eric Schultz.
Obama said in a statement, "We need to close the loophole
that allows managers at some large hedge funds and private
equity funds to unfairly cut their tax bills more than in half
by treating regular service income as capital gains."
The candidates' remarks came as Congress is considering
several bills that would sharply raise tax rates on some of the
financial world's most secretive and savvy professionals.
Carried interest is the 20 percent cut of profits above
targeted returns that is typically kept by private equity and
hedge fund managers on major transactions. It is a key source
of the vast fortunes some of them have amassed in recent years
as they have become powerful players in the global economy.
Under present law, these investment managers are allowed to
pay 15 percent capital gains tax on carried interest, not the
35 percent top ordinary income tax rate.
The attention of Congress has focused on these investment
managers since last month's $4.13 billion initial public
offering by private equity firm Blackstone Group (BX.N).
Blackstone co-founders Stephen Schwarzman and Peter
Peterson pocketed more than $2.4 billion between them on the
IPO, which showered hundreds of millions of dollars more on the
firm's senior members. It was the largest U.S. IPO since 2002.
Legislation being considered in the Senate and in the House
of Representatives would sharply raise taxes on private equity
firms and possibly hedge funds as well.
One approach favored by some lawmakers would boost taxes on
certain investment management firms that go public as publicly
traded partnerships, as Blackstone did. Another plan would
specifically raise taxes on carried interest.
In both approaches, the tax rate would go up to as much as
35 percent from the current rate of 15 percent.
Clinton, like many politicians from both parties, has
received campaign contributions in the past three years from
some of private equity's top managers.
Some of her supporters include leaders of firms such as
Bain Capital, Clayton Dubilier & Rice, Silver Lake Partners and
Warburg Pincus [WP.UL], according to campaign finance records
compiled by the Center for Responsive Politics.
"Don't get me wrong," Clinton continued, "private equity
and venture capital play important roles in our economy."
But she said: "We can close this loophole that unfairly
benefits some of the best paid people in America, while
continuing to encourage investment in innovative, young
companies. This is common-sense, pro-fairness tax reform."