But the influence of the Democrats' rich friends was just beginning to be felt. To offset the revenue losses from AMT's repeal, Rangel's bill proposed raising taxes on Wall Street financiers and hedge-fund titans, many of whom are major contributors to the Democratic Party.
Rangel's bill would tax hedge-fund compensation as regular income at the 35 percent top rate, instead of the current 15 percent capital-gains rate paid now.That's when powerful, well-funded lobbyists, bankrolled by hedge-fund managers, went to work. It wasn't long before Schumer, the Democratic Senatorial Campaign Committee chairman who has raised millions from these same financial managers, came out against Rangel's soak-the-rich, anti-investor bill.
Democratic Sen. Max Baucus of Montana, the Senate Finance Committee chairman who said the tax hike was a bad idea and would never pass in the Senate, followed Schumer.
Other Democrats are squirming over the tax-the-rich scheme as well. Rep. Rahm Emanuel of Illinois, the House Democratic Caucus chairman, wants a stand-alone fix for the AMT without a tax-hike offset, worrying that it could hurt Democrats in November. Some Democratic Blue Dogs have criticized the tax-hike offset, too.
Democratic analysts readily acknowledge what's going on here. "As far as the hedge funds and tax breaks go, the Democrats are clearly getting a lot of money from people who are affected by that, and they're responding," said Dean Baker, co-director of the liberal Center for Economic and Policy Research.
This is a story with profound political implications for Democrats who will have a hard time bashing Republicans next year as the party of the rich once the story gets out that they are protecting immensely wealthy hedge-fund managers from the IRS.
"The demographic reality is that the Democratic Party is the new party of the rich," Franc says.
Is this the kind of man-bites-dog story that we are likely to see reported on the nightly news shows? Don't hold your breath.