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Hedge Hogs

Imagine for a moment you were a car salesman and that you drew mostof your income from commissions--sell a few more minivans, get abigger paycheck, and so on. Now imagine the IRS said you didn'thave to pay full income taxes on those commissions--that you wouldbe taxed at half the normal rate. It'd be a pretty sweet deal foryou. But everybody else would complain. And rightly so: Why do cardealers deserve special treatment? Well, swap "hedge- fundmanagers" for "car dealers," and you've just become acquainted withthe latest skirmish in what the right calls "class warfare" but therest of us call restoring sanity to the federal tax code.

For many years now, the managers of hedge funds--large investmentfunds run exclusively for wealthy individuals--have taken theircompensation in so-called two-and-twenty arrangements. The tworefers to 2 percent of fund value, which the managers get as anannual management fee; the twenty refers to 20 percent of returns,which they take home annually as sort of a commission. These fundsare enormous, and the good ones do quite well. So you might not besurprised to hear that the fund managers make some extraordinaryincomes, sometimes in excess of $1 billion (yes, billion) a year.

And, hey, that's fine. This is America, and there's nothing wrongwith getting rich. But we do expect all Americans, even those withthe most money, to pay income tax like everybody else. And here'sthe surprise: These fund managers don't. Under current law, that 20percent is considered a form of capital gains. So, even though fundmanagers can take the bulk of their earnings this way, they willpay taxes on it at the reduced rate for capital gains--which is 15percent, or less than half what they would pay for other forms ofincome. Among those taken aback by this arrangement is Senator MaxBaucus, the chairman of the Finance Committee, who has convenedmeetings on the subject with an eye toward closing the loophole.

The investment community has responded, predictably, by dispatchinglobbyists. The Wall Street Journal editorial page has responded,just as predictably, by throwing a tantrum. "There's no goodrationale for this," say the high priests of conservativeeconomics, "beyond the fact that Congress wants money and privateequity funds have lots of it"--which, in more sensible circles, isknown as trying to finance the essential operations of governmentin the fairest way possible. The Journal also argues that reformwill hamper the economy, since the current tax break "aligns" theinterests of managers and investors--as if a fund manager makingonly threequarters of a billion dollars might be tempted to screwhis investors, while a fund manager making the full billionwouldn't.

Of course, the best argument for repealing this break is that itdistorts the economy--in this case, by encouraging people to becomefund managers rather than, say, entrepreneurs. But this is just areminder of a larger problem: the fact that we favor capital gainsin the first place. It's the wealthy who earn most of their moneyfrom investments; why should they get a tax break when people whomake money by hauling concrete, answering phones, or performingsurgery don't? And, quite apart from distributional justice, thebreak on capital gains interferes with the free market byencouraging investments that people might not otherwise undertake.Indeed, there is a whole business devoted to reclassifying normalincome as capital gains to take advantage of the reduced taxrate--more proof of the artificial distinction between investmentincome and labor income.

You would think that conservatives, who fancy themselves guardiansof the free market, might see this logic. And, while Republicansnotoriously overlook this, the tax favor for hedge-fund managers isso egregious that it irks even some of their stalwarts. SenatorCharles Grassley, of the Finance Committee, was actually the firstto raise this issue. That's an important signal: It may actually bepossible to do something about this small, though significant, flawin the tax code, even if the much larger fight over capital gainsmust wait for another day.

Borderline Sanity

There are many reasons--conservative rage, labor unionintransigence, Bush administration unpopularity-- to believe thatthe immigration reform currently under consideration may die apainful death. So what will happen in its absence? You can be surethe ranks of illegal immigrants will continue to swell, addingmillions more to those already living here without the benefits andresponsibilities of citizenship. And, while the impulse forcompromise reforms might wane after a depressing defeat, thepressure for draconian measures will grow. Immigrants already haveBush-like levels of popularity, and those numbers will likely sinkfurther. Eventually, antiimmigrant sentiment could lead tolarge-scale raids and deportations, a thriving English-onlymovement, and other manifestations of Know Nothing-ism--ugliness ona large scale.

Given its protean nature, it's hard to take a position on thecurrent legislation. The details keep shifting. Will it create anew class of guest workers? Will it prevent children from reunitingwith their parents? In the end, the legislation will undoubtedlyinclude highly distasteful provisions. And, in the end, thoseprovisions are probably worth swallowing.

Occasions for immigration reform come around about once ageneration. And it's hard to imagine circumstances as congenial asthe present will offer themselves again anytime soon. We have aconservative president bent on sticking reform in his empty trophycase--despite the opposition of his political base--and aDemocratic Congress that basically wants to help him put it there.This dynamic won't last long. As conservative hostility toimmigration grows, the chances of a successor Republican presidentembracing the cause of reform will diminish severely. And it's hardeven to imagine a Democratic president flirting with such athird-rail issue.

The current compromise is not about fetishizing bipartisanship; it'sabout improving the lives of over ten million human beings whoreside in our country and staving off a ferocious backlash againstthem. And, for all the bill's likely faults, it will provideillegal immigrants with a path to citizenship. Yes, we would preferit if this path weren't littered with pointless obstacles. But, ifthis bill is rejected outright, then even that path could disappearfor decades more.

Veiled Contempt

Sexism may be a fact of life in contemporary Iran, yet doublestandards do not always apply. As an Iranian-American journalistonce observed, "[I]n cases of jailing, torture, and executions forpolitical beliefs or on spurious charges, women and men have beentreated with full equality." Those words belong to HalehEsfandiari, and she wrote them in these pages 22 years ago. Theworld now knows Esfandiari as a victim--an unlucky Washington-basedscholar who had the misfortune to be visiting her ill, elderlymother in Iran at a time when Tehran's rulers happened to be benton sending a message to the West. But, before she was spirited awayto Iran's infamous Evin Prison, before she was charged with seekingto overthrow the Islamic Republic, Esfandiari was a storyteller.Specifically, she used her skills as a journalist and intellectualto tell Western audiences the stories of Iranian women. Two yearsago, in Foreign Policy, she wrote about an editor who managed topublish a feminist magazine, even as her offices were trashed andher writers imprisoned. In her 1997 collection of oral histories,Reconstructed Lives: Women and Iran's Islamic Revolution, she toldof the small, cosmetic acts of resistance that carry so much riskfor Iranian women: the physician who wore a turban that did notcover her neck; the woman who was beaten with a metal chain forallowing too much of her head to show. Her sober 1985 piece for TheNew Republic noted that women had played a key role indemonstrations that brought down the Shah, only to find themselvesrelegated to second-class status following the revolution. Sheexplained how "courts allowed families dispensation to marry offdaughters as young as ten years old" and how a "wisp of hairescaping from beneath the scarf has gotten women jailed asprostitutes."

Now that Esfandiari has herself been jailed, Western leaders must doeverything in their power to secure her release. Such efforts willnot necessarily be futile: In the past, Tehran has provedsusceptible to outside pressure where dissidents are concerned,agreeing to release jailed reformers like Akbar Ganji and EmadeddinBaghi.

But we must not stop there. It is not just Esfandiari's plight, butthe plight of all Iranian women that should be our concern. In theWest, there is today lively disagreement about how best to supportIranian resisters, with some arguing for a subtle approach andothers favoring an onslaught of aid and rhetorical backing. This ishealthy: We can, and should, debate the proper means for aidingvictims of brutal regimes. But, whatever means we choose, let usnever lose sight of the ends: an Iran where human rights arerespected, where political freedom is real--and where, someday,women like Haleh Esfandiari will not have to go to prison to betreated with full equality.