President Pushes To Close Carried-Interest Loophole As Default Nears

Jul 26 2011 | 1:43pm ET

With the United States lurching towards its first-ever debt default after the acrimonious, on-and-off talks between President Barack Obama and Congressional Republicans collapsed again, the president turned to the American people to insist that higher taxes be part of a balanced plan to reduce the deficit and increase the country's debt limit.

Despite his backing for a plan, crafted by Senate Democrats, that includes no revenue-raisers, in his address Obama again called for, among other things, the end to the carried-interest loophole, which allows hedge fund managers to pay the lower capital-gains rate on their performance fees, rather than the earned income rate.

"How can we ask a senior citizen to pay more for her Medicare before we ask a corporate jet owner or the oil companies to give up tax breaks that other companies don't get?" the president asked. "How can we ask a student to pay more for college before we ask hedge fund managers to stop paying taxes at a lower rate than their secretaries? It's not fair. It's not right."

In his own speech after the president's, House Speaker John Boehner (R-Ohio) blasted Obama, saying the president was seeking a "blank check." Republicans want a two-stage debt-limit increase that would require a plan to be hammered out next year, in the middle of Obama's re-election campaign. Democrats say they'll reject any debt-limit increase that does not run through next year.

House Republicans and Senate Democrats were busy crafting competing plans, although neither was assured of success. Right-wing Republicans and Tea Party supporters are balking at Boehner's plan to offer a $1 trillion debt increase in exchange for $1.2 trillion in budget cuts, while it is unclear whether enough Senate Republicans will support Senate Majority Leader Harry Reid's plan to avoid a filibuster.

Obama called on the public to inundate their representatives in Congress by telephone and on the Internet, saying, "the only reason this balanced approach isn't on its way to become law right now is because a significant number of Republicans in Congress are insisting on a different approach, a cuts-only approach—an approach that doesn't ask the wealthiest Americans or biggest corporations to contribute anything at all." And it appears many Americans are heeding that advice, although it is unclear whether they are all in the president's corner. Several congressional Web sites were overwhelmed by traffic today and a number of Congressmen's phone lines were giving busy signals, indicating a large call volume.

Tough as Boehner's words were, they were nothing compared to the tongue-lashing Obama received at the hands of Third Point's Daniel Loeb, an expert wielder of the poison pen. Loeb, once one of Obama's biggest supporters, blamed the impasse on the president's lack of leadership and his "stirring up class warfare."

"It's increasingly difficult to avoid the conclusion that while Washington burns, President Obama is fiddling away by insisting that the only solution to the nation's probems—whether unemployment, the debt ceiling or deficit reductions—lies in redistribution of wealth," Loeb wrote in his most recent investor letter, ostensibly to notify clients that the fund took a hit in the second quarter.

"Perhaps the difference between President Obama and many Americans is that the president sees prosperity as a sign of 'unfairness' that needs to be corrected by government via higher taxes and increased regulation."

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