The Senate Caves

In a recent interview with Reid in his opulently chandeliered suite in the Capitol, I ask why the Democrats had not used their majority in the Senate to close the hedge-fund loophole. He greets the question with dead silence. When he finally speaks, he tells me something I never thought I would hear from a Democrat: that it would be wrong to single out the nation's wealthiest investors simply because they are bilking the treasury out of billions.

"The only difference between hedge-fund operators and other folks similarly situated," Reid argues, "is that they make more money." He and Schumer would be "totally in favor" of taxing them, he adds — so long as the same tax rates were brought to bear on thousands of far less profitable business partnerships whose activities the tax break was intended to boost. The "fairness" stance appears reasonable, until you consider that Reid and Schumer used it to transform a modest tax reform — one co-sponsored by the ranking Republican on the Senate Finance Committee — into a far more sweeping measure that was easily blocked by the GOP minority in the Senate.

What Reid also failed to mention is that the real difference between hedge-fund billionaires and others "so situated" is that they are the ones underwriting efforts by the Democratic Senatorial Campaign Committee run by Schumer. According to campaign-finance records, seven of the country's 10 richest hedge-fund managers contributed an average of $24,400 to the DSCC last year. "Schumer didn't want to turn the spigot off," says Bob McIntyre, director of the nonpartisan Citizens for Tax Justice. All told, the hedge-fund and private-equity sectors have showered the Democrats with more than $14 million this year — double what they have given Republicans.

Schumer did not return repeated calls seeking comment from the Baileys.