Charles Rangel's Plan for a Tax Increase

The New York Sun reports:

So far, both the politicians and Wall Street have been slow to appreciate the unfolding tax drama in Washington. The Street has given its attention to what may end up as a sideshow, the commotion over carried interest through which incentives go to certain fund managers. Carried interest is currently considered a capital gain and taxed at the rate of 15%. Some conservative economists, such as Harvard's Greg Mankiw and the Cato Institute's William Niskanen, argue that such interests should be taxed like profits from any ongoing business. The danger is that, as Congressman Tom Reynolds warned, the issue will turn out to be a "Trojan Horse" for those who seek to tax capital gains in general at ordinary income rates.

The Street has been strangely oblivious to the possibility that the 15% rate for capital gains and dividends will go away for all investors if the Bush tax cuts expire in 2010 as they do in current law. New York's hometown industry, whose moguls include many big political donors to the Democrats, fears it could lose the 15% tax rate as early as this year. So it is financing a frenzy of lobbying in Washington, treating the capital city to advertising that purports to show that civil liberties, minority and women entrepreneurs, and middle class pensioners will all be hurt if carried interest gains were to be taxed at the ordinary income rate of 35%.

Where is the effort to defend the 15% rate on investment? We sense a state of denial. Hill Democrats with a nervous eye on the 2008 election cycle had been chary of suggesting they will repeal the Bush tax cuts on investment income before 2010. Not so any longer. What Mr. Rangel gave a glimpse of was a narrative that will build over the next two years and establish the broad outlines of a tax "reform" — i.e., hike — no later than 2009, perhaps in partnership with, say, President Hillary Clinton or President Obama. Thursday was the opening salvo in a campaign against the investor-friendly tax cuts of 2003.

Some politicians really like tax increase:it gives them more money to give to their friends.