The Hill Newspaper: We've Found a Tax Hike Some Conservatives Like

The Hill newspaper can be a good read for Capitol Hill coverage. It goes deeper than the superficial treatment the MSM often gives legislative matters.

That said, it seems to me the paper is taking at best a curious tack on an issue dividing fiscal conservatives of late: whether to sew up a federal tax loophole on private equity compensation and effectively raise some taxes as a result.

The Hill is painting the matter as one of conservative activists versus their GOP congressional allies with Jessica Holzer's July 18 article, "Conservatives break with GOP leaders on tax bill." The lede for the article lends the impression that some conservatives are finding a tax they actually like:

Some prominent conservatives are coming out in favor of a Democratic proposal to raise taxes on the private equity and hedge fund industries, signaling a break with anti-tax groups and Republican lawmakers on the issue.

William A. Niskanen, the chairman of the libertarian Cato Institute and a former member of President Reagan’s Council of Economic Advisors, called the share of investment profits, or “carried interest,” earned by hedge fund and private-equity managers “basically fees for managing other people’s money” and said it should be taxed as ordinary income rather than as a capital gain.

Aside for Niskanen, Holzer cites an expert at the Hudson Institute as favoring a shift in tax law governing private equity compensation. Yet later in Holzer's article she notes numerous conservative activists strongly opposed to the legislation sponsored by Rep. Sander Levin (D-Mich.)

Holzer cited the Wall Street Journal editorial board, Americans for Tax Reform (ATR) and the Club for Growth as strong opponents of the Democratic-sponsored legislation while noting that the "conservative Heritage Foundation, usually a vocal opponent of tax increases, has not yet taken a stance on carried interest."

Of course, regardless of where they stand on private equity taxation, conservative and libertarian activists generally agree that more can be done to lessen the federal tax burden. As Holzer herself noted in her closing paragraph, Cato's Niskanen:

... said that while he supported taxing carried interest as ordinary income, he favors far lower tax rates on corporations. He argued that the brouhaha over carried interest provided an opening for lawmakers to reduce the corporate income tax rate at the same time they raised taxes on fund managers.

The bottom line: while the article sheds some light on an in-house debate among fiscal conservatives on one issue in the complex tax code, what is lost to the reader is the sense of the greater unity among fiscal conservatives in combating the burdensome federal tax code, including the federal corporate tax rate, which ranks higher than even more socialized economies like France, Mexico, Canada, and Sweden.