Sen. Obama wows hedge fund crowd

NANTUCKET, Mass. — At a dark-shingled mansion, one of many tucked along Washing Pond Road on this island’s north shore, Sen. Barack Obama (D-Ill.) met a couple hundred of the nation’s wealthiest Democrats at a $1,000-a-plate fundraiser on Friday to explain why he should be president even though he’ll raise their taxes.

Many residents with summer homes here have made fortunes from private equity deals and hedge funds. (A local neighborhood association recently made national headlines by raising $25 million to combat beach erosion.)  

{mosads}The host of Obama’s fundraiser, Louis Susman, sits on the executive advisory board of Edgewater Funds, a private equity firm based in Chicago, according to the firm’s website.

But tax raises on private equity firms and hedge funds did not come up during Obama’s visit, even though the candidate has proposed them.

“We need to close the loophole that allows managers at some large hedge funds and private equity funds to unfairly cut their tax bills more than in half by treating regular service income as capital gains,” Obama said recently.

Charlie Gifford, who works at Heritage Partners Inc., which bills itself as a “leader in private equity for family-owned businesses,” said he should have asked Obama about raising rates on money managers but didn’t.

Instead, Gifford, an independent, said he came to hear Obama talk about international affairs and Iraq, and to feel out whether Obama would have credibility as president in the international arena.

“This quagmire is not going to be solved in the next two to three years,” said Gifford, who said Obama made a good impression. “He wasn’t just talking about his bullet points.”

But Democratic proposals to increase taxes on private equity partnerships and hedge funds were, nevertheless, on guests’ minds, said one participant who declined to give his name.

In response to a question, one donor leaned out the open window of his shiny new SUV to proclaim his hope that Obama would announce his opposition to raising tax rates on private equity.

Obama dodged an awkward moment at the fundraiser by talking about issues he and wealthy Democrats agree on, such as the need to improve education and focus on international diplomacy. Tax policy did not come up, said several guests.  

But talk of policies targeting the super-rich threatens to spoil the taste of foie gras at fundraisers Democratic presidential candidates plan to hold between now and Election Day.

At the beginning of August, Sen. Hillary Rodham Clinton (D-N.Y.) has scheduled five fundraisers in the Hamptons, another summer playground of the rich, including many money managers from New York City.

Clinton has panned the tax benefits accrued by private equity firms and hedge funds.

“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,” Clinton declared. “As president I will reform our tax code to ensure that the carried interest earned by some multi-millionaire Wall Street managers is recognized for what it is:
ordinary income that should be taxed at ordinary income tax rates.”

Former Sen. John Edwards (N.C.), who rounds out the top tier of Democratic candidates, also supports raising tax rates on private equity, even though he worked for a hedge fund after leaving the Senate and a review of his campaign records shows contributions from many donors employed by hedge funds.

The Democratic White House hopefuls have also proposed other tax increases for the rich. Obama and Clinton support repealing tax cuts passed under President Bush benefiting households who earn more than $250,000. Edwards has proposed rescinding the tax cut for those earning more than $200,000.

Yet Democrats have continued to raise millions of dollars from the nation’s ritziest neighborhoods. Federal Election Commission (FEC) data show that Clinton raised more than $1 million for her campaign from people living in the 90210 area code of Beverly Hills. Forbes last year rated Beverly Hills among the most expensive zip codes in the country and once described it as “an entire neighborhood dedicated to conspicuous consumption.”

Obama has raised $880,000 from the 90210 zip code; Edwards has collected $315,000, according to FEC data.

A spokeswoman for Obama said it is natural for supporters to disagree with their favorite candidate on some issues.

“Everyone who is supporting Senator Obama doesn’t support him on every single issue,” said Jen Psaki. “He can agree to disagree with supporters up and down the gamut — some may be wealthy and some may not be wealthy.”

A spokesman for Clinton highlighted her political courage.

“Senator Clinton’s supporters know she is going to stand up for what she feels is right, and that’s one of the things they find so appealing about her,” said Blake Zeff.

Colleen Murray, an Edwards aide, said: “People who choose to donate to Senator Edwards do so because his policies are right for America. In order to achieve our goals for the country, everyone has to sacrifice a little.”

On Nantucket, at least, wealthy Democrats were content to hear Obama talk about Iraq and race relations in the U.S.
“People asked what he would do on the war,” said John Archibald after the event.

Archibald said Obama also touched upon the subject of race relations “many times” and mentioned the famous civil rights march in Selma, Ala.

Archibald said he would have liked to ask about taxing equity funds, but that Obama kept his talk short.
“None of those questions were asked,” he said.