John Edwards 2008: What’s not to like

Since his stint as the Democrats’ vice presidential candidate in 2004, the tension between Edwards’ private life and his politics has been growing. In recent years, Edwards, 54, has adopted a more populist tone at the same time he’s taken on more of the accoutrements of wealth.

That tension may be one reason that Edwards has struggled against Sens. Hillary Clinton of New York and Barack Obama of Illinois.

“I think it does hurt him, because it calls into question his sincerity,” said former South Carolina Democratic Party Chairman Dick Hartpootlian, who backs Obama. “If you base your campaign on where you come from, the haircut, the corporate portfolio, all that is inconsistent with that.”

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As a lawyer, Edwards went for the big payoffs, making millions suing doctors, hospitals and corporations and building a net worth he’s reported at about $30 million. Edwards wasn’t an anti-poverty lawyer, and he did little pro bono work. He didn’t emphasize fighting poverty when he ran as a moderate in 1998, defeating Republican Sen. Lauch Faircloth, or during his six years in the Senate.

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But since his Senate election, he’s traded up to progressively tonier residences: a $3.8 million house near Embassy Row in Washington, a $5.2 million house in Georgetown and finally a $6 million house, which includes a full-size indoor basketball court, built in 2005 outside Chapel Hill.

Edwards also took a part-time consulting job with Fortress Investment Group of New York in October 2005. Fortress raises money from wealthy individuals and institutions, pools the cash in private equity or hedge funds and invests it in alternative ways - buying public companies and taking them private, for instance - to beat usual market returns.

With $43 billion under management, including $16 million of Edwards’ personal fortune, Fortress is among the major firms in its class. While Fortress was incorporated in Delaware, its hedge funds were incorporated in the Cayman Islands, allowing partners and investors to avoid or defer paying taxes. That’s a practice that Edwards frequently has criticized.
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Under his plan, not only the rich would get soaked.

Some of this “soak-the-rich” policymaking will please voters who don’t understand how the economy really works. But despite what Edwards says, the engine of our economy is largely Wall Street (Washington is, alas, the caboose). Financiers and investment managers on Wall Street, and in London and Dubai, put their investment dollars into start-up companies as well as established companies all over America. If the cost of that investment capital rises—thanks to the U.S. government’s dramatically increasing its own percentage of any profits—then the capital will become scarcer. Investors may shun taking risks, knowing that the potential reward will be much lower. Further, Wall Street investment managers can easily move to Dubai, or Mumbai, or other exciting cities competing for our capital—and some entrepreneurs and start-up companies will follow, taking jobs with them.

As for Edwards’s tax hike on “wealthy” income earners, he doesn’t seem to understand that there’s no bright line between the “rich” and the middle-class. Senator Clinton, for example, if she were brave enough, might point out that hundreds of thousands of her downstate constituents take home $200,000 a year, and still think of themselves as middle class. In fact, on the same day that Edwards unveiled his plan, New York City announced that it would start paying police captains a base salary of $142,000; a captain married to a paralegal easily could exceed $200,000 a year in household income. One reason that Edwards-style plans never seem to gain much traction with the public is that many voters believe that they’ll eventually be in the ranks of what Edwards defines as “rich”—even if, today, they earn only in the mid–five figures annually.

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According to the Congressional Budget Office, families in the bottom 20 percent of earnings saw their incomes rise 35 percent after inflation over the past decade and a half, more than the increase of any other income group save for the top 20 percent.

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All of these proposals warrant serious debate, especially if they’re coupled with cutbacks in less successful antipoverty programs. But America can’t have a real debate on economic issues when too many middle-class swing voters rightly fear that any more money to help the “poor” will come out of their own pockets, thanks to Edwards’s zero-sum politics.

More saliently, if Edwards forces up the cost of capital for job-creating entrepreneurs, start-ups, and corporations via his tax hikes on capital gains and more affluent earners, we won’t be able to pay for these programs, old or new, anyway. Edwards really proposes to curtail wealth, which, after all, makes possible job growth in the economy as well as transferring payments to the people he most wants to help.

City Journal 7/31/07
http://www.city-journal.org/html/eon2007-07-31ng.html

Edwards, who has made economic fairness a central issue of his campaign for the Democratic nomination, said he would announce within 10 days his position on a House bill that would force fund managers to pay taxes as high as 35 percent on their share of profits instead of the 15 percent capital-gains rate most pay now.

“It’s not a big secret that I believe there’s some unfairness in the tax code, and I think some of that unfairness applies to hedge funds and hedge-fund managers,” Edwards, a former senator from North Carolina, said in an interview with Bloomberg Television’s “Political Capital with Al Hunt,” scheduled to air today.

Edwards, 54, who has worked for New York-based hedge fund firm Fortress Financial Group LLC, is the first Democrat running for president to signal support for the legislation. Among Republicans, former New York Mayor Rudolph Giuliani has said he opposes raising the managers’ taxes.

Hedge funds and private-equity firms have poured millions of dollars into lawmakers’ campaign coffers. About two-thirds of campaign donations from employees of the biggest hedge funds and buyout firms last year went to Democrats, Federal Election Commission records show. Edwards received $182,250 in campaign contributions from employees of Fortress in the first quarter, making the hedge fund his biggest financial backer.

Edwards, who has called for rolling back President George W. Bush’s tax cuts on the wealthy, wouldn’t be pinned down on whether he supports proposals to dramatically increase the capital-gains rate, which was lowered from 20 percent to 15 percent in 2003.

“You have to do it in a way and establish a rate that doesn’t cause capital to flee America,” he said. “We don’t want the capital to go elsewhere.”

He said he’s still studying the issue, though he agrees in principle with billionaire investor Warren Buffett — the chairman of Omaha, Nebraska-based Berkshire Hathaway Inc. — who said June 26 that the rich “should not be taxed at a lower rate than the people who serve you at the deli.”

“I am trying to determine myself right now how you deal with that moral disconnect,” Edwards said. “I think it’s there. I think it’s real.”

Edwards said for now he’s leaning toward a proposal to narrow the 20 percentage point gap between capital gains rates and those for wages, yet not close it altogether.

“I haven’t made a final decision about it,” he said.

The Senate Finance Committee will hold the first congressional hearing on the taxation of fund managers on July 11.

Bloomberg
http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=ab8kmXLpE7nA

A Democratic presidential debate, before a predominantly African American audience at Howard University last night, took a small step toward smoking out the leading White House contenders on Wall Street’s hottest political issue: raising taxes on private equity and hedge fund executives.

Former Sen. John Edwards of North Carolina, who has ducked an issue that would hit his former colleagues at Fortress Investment Group, couldn’t avoid showing his populist colors. Citing Warren Buffett’s complaint that he pays a lower effective tax rate than his secretary, Edwards cited the “moral disconnnect” between workers paying ordinary income tax rates and financial tycoons paying preferential capital gains rates.

An Edwards aide preserved the candidate’s room for waffling after the debate, saying he hadn’t endorsed pending House legislation to curb the use of “carried interest.” But after Edwards’ comments last night he’ll face a strong hypocrisy attack if he doesn’t embrace the idea.

CNBC 6/29/07
http://www.cnbc.com/id/19503554

You’ve got to give John Edwards some credit. Unlike most of the presidential candidates of both parties, he’s actually proposing some very specific economic policies–and even putting some price tags on them.

Snip: Universal healthcare? Somewhere between $90 billion and $120 billion a year. Then there’s his $20 billion spending program to end poverty. And his $13 billion spending program to revamp American energy use.

So where’s all the money coming from to pay for all this wonderful stuff? Well, Edwards would get rid of the Bush income tax cuts on Americans making more than $200,000 a year. He might also raise capital gains taxes and eliminate the $90,000 earnings cap on Social Security taxes to make that program solvent.

A few problems immediately spring to mind. First of all, rescinding the Bush tax cuts for upper-income Americans would bring in only $50 billion a year, according to an analysis by the Urban Institute. (And that doesn’t take into account any impact on economic growth from higher taxes on the most productive workers.) Not only does that $50 billion not entirely cover Edwards’s plans, but it also uses the same pot of money that Democrats want to tap to pay for reform of the alternative minimum tax. And while eliminating the income cap on Social Security might bring in more money, it would also be a discouraging new tax on workers at exactly the same time that many economists are predicting a shortage of workers.

But if Edwards’s numbers don’t add up, I’m not sure he really cares. He has gone on record saying that he doesn’t have an obsession with balanced budgets at time when he thinks America has so many unmet spending needs.

And on this issue, a President Edwards might catch a break. Given the pace of tax revenues, Uncle Sam might have a balanced budget sooner rather than later. Economist Michael Darda notes that if tax revenue growth continues to outpace spending growth by 6.1 percentage points, the budget will move into surplus by April 2008. It will be hard for fiscal hawks to argue the budget is in crisis when it’s in the black. Score a point for Edwards.

But the river of money flowing into Washington, D.C., also means that tax revenues as a percentage of the whole economy are now nearly a percentage point above their historical average. Generally when that happens, taxes get cut–not raised. Higher taxes for more spending? That might be a tough case even for a skilled former litigator like Edwards to argue.

US News and World Report

http://www.usnews.com/usnews/biztech/capitalcommerce/070515/could_we_afford_a_president_ed.htm

In 2004, John Edwards rarely had an unkind word to say about his rivals for the presidency. But it isn’t 2004 any more.

Should Hillary Clinton apologize for backing the Iraq war? “That is a moral decision she has to make,” Edwards told me.

Is George Bush a “good man in difficult circumstances trying to do the right thing?” No, Edwards said. He is not.

That nonbinding resolution against the Iraq troop surge favored by Barack Obama? “Useless,” said Edwards. “Exactly like a child standing in the corner and stomping his feet.”

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Second, Edwards may be able to flank both Hillary (as her campaign officially calls her) and Obama on the war.

“When we went to war, Senator Clinton and I both voted for it and Senator Obama was not in the Senate,” Edwards told me recently. “I have since said I was wrong, and I take responsibility for that. I have not heard Senator Clinton say that.”

Should she say she was wrong? I asked.

“That is a moral decision she has to make,” Edwards said. (more…)

But doctors say there is another side. Insurance companies may cut the checks for the big awards and settlements. But the price is being paid by doctors and hospitals who ultimately pass the costs to patients through higher medical bills, the doctors say. And they say such malpractice cases cause doctors to practice defensive medicine, ordering unneeded tests.

One Charlotte obstetrician quit her practice after losing a $23 million suit that was handled by Edwards. The St. Paul Group of Minnesota, the main medical malpractice carrier in the state, stopped offering insurance to obstetricians, citing high settlements.

Dr. David Newman, a Charlotte obstetrician, says trial lawyers such as Edwards are a major reason that malpractice insurance premiums are rising so rapidly. Faced with annual increases of 25 to 30 percent, Newman said he has cut his OB-GYN practice in half to reduce his liability exposure.

“For the last 10 to 15 years, people have gotten very relaxed into thinking no one is getting hurt — we are just suing insurance companies; we are not suing your doctor,” Newman said. “It just isn’t true. Everybody pays . . . for John Edwards’ $50 million.” (more…)