Dems and Hedge Fund Taxes

Hedge fund managers can take a big sigh of relief, but watch out for 2009. Legislation that would have eliminated a tax provision allowing some hedge fund managers to defer taxes on billions of dollars of compensation came close to passing the Senate Tuesday, but in the end it was blocked.

Sen. John Kerry, D-Mass., attached a deferred tax provision to a broader energy bill, all of which was rejected by a filibuster from Republican senators. The measure would, in a nutshell, make hedge fund managers pay taxes immediately on income that is now tax-deferred.

"This vote is proof positive that Senate Republicans are more interested in helping hedge fund managers avoid taxes than helping working families," Kerry said on the Senate floor.

And while Kerry and other Democrat lawmakers remain frustrated by the outcome, hedge fund lobbying groups assert that the end of the deferment would have stifled investment and hurt the liquidity that hedge funds provide to the markets.

Of course, should Democrats obtain or get near to a filibuster proof majority of 60 senators following the upcoming election, a similar rejection might be more difficult or impossible to achieve. A Senate with 58 Democrats would have an easier time convincing (or strong-arming) a couple Republicans to break ranks and back a bill. And if not, Senate Majority Leader Harry Reid, D-Nev., could offer a few "incentives" like a bridge to nowhere. - Ron Orol