New York Sen. Hillary Clinton, the front-running Democratic presidential candidate, Friday called for closing a loophole that she said unfairly lowers the tax burden of a few top Wall Street financiers.
Clinton called the loophole a "glaring inequity" and joined other lawmakers in a push to raise the tax rate on "carried interest" gains made by senior partners in the booming private equity and hedge fund businesses.
"It offends our values as a nation when an investment manager making $50 million can pay a lower tax rate on her earned income than a teacher making $50,000 pays on her income," said Clinton in a campaign statement.
"As president I will reform our tax code to ensure that the carried interest earned by some multimillionaire Wall Street managers is recognized for what it is: ordinary income that should be taxed at ordinary income tax rates."
Two other Democratic presidential hopefuls -- John Edwards, a former senator, and Illinois Sen. Barack Obama -- have also expressed support for raising the "carried interest" tax.
Carried interest is the 20 percent cut of profits above targeted returns that is typically kept by private equity and hedge fund managers on major transactions. It is a key source of vast fortunes amassed by them in recent years as they have become increasingly powerful players in global finance.
Under present law, these investment managers are allowed to pay 15 percent capital gains tax on carried interest, not the 35 percent top ordinary income tax rate.
The attention of Congress has focused on these investment managers since last month's $4.13 billion initial public offering by private equity firm Blackstone Group.
Blackstone co-founders Stephen Schwarzman and Peter Peterson pocketed more than $2.4 billion between them on the IPO, which showered hundreds of millions of dollars more on the firm's senior members. It was the largest U.S. IPO since 2002.
Legislation being considered in the Senate and in the House would sharply raise taxes on private equity firms and possibly hedge funds as well.
One approach favored by some lawmakers would boost taxes on certain investment management firms that go public as publicly traded partnerships, as Blackstone did. Another plan would specifically raise taxes on carried interest.
In both approaches, the tax rate would go up to as much as 35 percent from the current rate of 15 percent.