Good/Bad Democrats

My mother-in-law and I were talking politics last night. At the risk of argument, its not something we often do when we're around each other.

Even though she opposes the war, she tends to tilt toward libertarianism. "I'm tired of big government," she cries. While she accepts that there are a lot of corrupt Republicans in Congress and in the White House, she doesn't think that the Democrats are any different. "When I go to vote, I don't have a choice!"

Maybe she's right.

Paul Krugman writes in today's New York Times, "A Test for Democrats":
It's been a good Democrats, bad Democrats kind of week. The bill expanding children's health insurance that just passed in the House makes you want to stand up and cheer. Reports that Senator Charles Schumer opposes plans to close the hedge fund tax loophole make you want to sit down and cry.

The hedge fund tax loophole is a crystal-clear example of unjustified privilege. Because of a quirk in the law, the people who run these funds don't pay taxes like ordinary mortals.

For example, the salaries that pension fund employees receive for managing other peoples' money are taxed as ordinary income, at rates up to 35 percent. But if that money is invested with a hedge fund -- and 40 percent of the money in hedge funds comes from public, corporate and union pension plans -- the fees the hedge fund manager receives for his services are mainly taxed as capital gains, with a maximum rate of 15 percent.

And we're talking about a lot of lost revenue here. The Economic Policy Institute estimates that the hedge fund loophole costs the government $6.3 billion a year -- the cost of providing health care to three million children. Of that total, almost $2 billion a year in unjustified tax breaks goes to just 25 individuals.

If being a Democrat means anything, it means opposing this kind of exorbitant privilege. Yet according to a report in The Times earlier this week, Mr. Schumer says that he opposes any increase in hedge fund taxes unless tax breaks for the energy and real estate industries are also eliminated, and pigs start flying.

Mr. Schumer, who heads the Democratic Senatorial Campaign Committee, insists that the large financial contributions that hedge funds make to his party aren't influencing him. Well, I can't read his mind, but from the outside his position looks remarkably like money-driven politics as usual. And that's not acceptable.

Look, the worst thing that could happen to Democrats is for voters to conclude that there's no real difference between the parties, that when you replace Republicans with Democrats, all you do is replace sweet deals for Halliburton with sweet deals for hedge funds. The hedge fund loophole is a test -- and it’s one that Mr. Schumer is failing.