"If You Can't Drink Their Booze"

The late and legendary speaker of the California State Assembly, Jess Unruh, laid down to his legislative colleagues tough rules for their dealings with the free-spending lobbyists then much in vogue in Sacramento:

"If you can't drink their booze, take their money, sleep with their women and then vote against 'em, you don't belong in politics."

In the fall of 2007 in Washington, D.C. — where money doesn't simply talk, it roars — our need for legislators gutsy enough to pass Jess Unruh's test became even more acute when The Washington Post's Jeffrey Birnbaum wrote what the "smart money" on Capitol Hill and in New York had been openly assuming. Senate Majority Leader Harry M. Reid, D-Nev., had, according to executives and lobbyists, informed private equity firms that "a tax-hike proposal they have spent millions to defeat will not get through the Senate this year."

It is true — as Jim Manley, Reid's spokesman, pointed out — that it is doubtful in the closing weeks of the congressional session "whether there is sufficient time to address the appropriate tax treatment of private equity funds." But the ugly political truth remains: The privileged tax status of these preternaturally prosperous private equity and hedge fund managers — to have their earnings taxed at the reduced capital gains rate of 15 percent instead of the standard tax rate of 35 percent — will remain the law of the land (with no tax increases in a presidential election year) well into 2009.

The words in opposition of then-Rep. and now Sen. Byron Dorgan, D-N.D., in an earlier debate over cutting the capital gains tax are still timely: "Why don't we go all the way and simply take the rich off the tax rolls altogether?"

Don't just take my word for it.

Listen to what America's premier investor, multibillionaire Warren Buffett, told CNBC's Becky Quick in an interview two months ago: "In my office, I have 18 or so people there, and I ask them to compute line 63, which is their tax, and then add payroll taxes, and compare it to line 43, which is their taxable income. And these people who make anywhere from $50,000 to $750,000 a year ... and the lowest person in the office pays a higher rate than I do. I paid 17.7 percent last year, counting payroll taxes. ... The (employees) average was twice mine."

But what about the private-equity managers? Buffett: "Those fellows say they fix up companies and they get paid for doing that. On balance, they're paying a 15 percent tax rate on that and no payroll taxes, and somebody that fixes up the restroom is paying 15.3 percent in payroll taxes, jut to start with." Thus, the individual who cleans the restroom "for peanuts pays a higher tax rate than people who fix up companies (being paid) hundreds of millions of dollars annually in income."

With only a small handful of exceptions — most conspicuously Iowa GOP Sen. Chuck Grassley — Republicans, following the lead of the Bush White House, defend the favored treatment of the 15 percent capital gains tax-rate — which is intended to reward people for risking their own money in an investment — for these private-equity moguls who are managing other peoples' money, not investing their own. This ought not to surprise us, because Republicans react to any tax increase, even one demanded by fundamental justice and human decency, like a vampire reacts to a crucifix.

But what will congressional Democrats answer when their grandchildren one day ask them, as they certainly will: Why in 2007 did you allow billionaires to preserve in federal law an indefensible tax subsidy for themselves? This is not a proud moment for the party of Andrew Jackson.

To find out more about Mark Shields and read his past columns, visit the Creators Syndicate web page at www.creators.com.

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COPYRIGHT 2007 MARK SHIELDS