'08 Candidates Walk Political Tightrope on Tax Issue

Both candidates oppose a proposal in the Senate by Finance Chair Max Baucus, a Montana Democrat, and ranking Republican Charles Grassley of Iowa, to tax publicly traded hedge funds or private-equity partnerships at the same rate as other corporations.

"Mayor Giuliani views the Baucus-Grassley bill as a tax increase, and the last thing we need right now is another tax increase," Giuliani campaign spokeswoman Maria Comella told ABC News.

The Bush administration has criticized the idea of raising taxes on hedge-fund and private-equity managers, suggesting the president might veto such a tax hike.

Democrats Hedge Bets

Democratic presidential candidates have been reluctant to condemn the tax loophole for these elite investment clubs, instead voicing more tepid, general concern.

"The Democratic candidates and their staffs are still trying to determine where they should come down on this," said Paul Brathwaite, a Democratic strategist.

"It may not be as simple as going after a group of rich people," said Brathwaite, arguing Democrats are wary of upsetting the market and want to learn more about the issue before committing to a position during the election.

However, others suggest a big part of their apprehension could be the millions of fundraising dollars they are raising from these private equity and hedge fund managers.

"It's their convictions pitted against their money," said Dan Primack, editor of PEHub.com, a financial Web site. "They've taken in millions from these private equity folks and so the Democrats have a problem."

"The vast majority of private equity folks are dead set against this type of tax change," Primack said.

Sen. Hillary Clinton, D-N.Y., took in almost $1,680,000 from securities and investment firms in the first three months of her campaign -- the most of any other Democratic candidate, according to analysis by the Center for Responsive Politics.

When pressed for the position on the issue, Clinton's press secretary told ABC News last month: "Sen. Clinton believes there are broad concerns surrounding private equity in relation to the rest of the market."

Clinton's campaign took in more than $1 million dollars from a glitzy, Manhattan fundraiser on June 26, where campaign staffers passed out copies of a Fortune Magazine that declared "Business Loves Hillary!" on its cover. Many big name private equity and hedge fund managers attended.

"It's a real tough issue for somebody like her to finesse, because when she's trying to sell herself to these people, if she favors this tax, she is essentially saying to these people, 'I'm in favor of double or tripling your taxes,' and that's a very difficult thing to navigate," said Primack.

Sen. Barack Obama, D-Ill., took in $1,395,000 from investment and securities firms in the first quarter, according to the Center for Responsive Politics.

Obama's Senate press secretary told ABC News that the senator has said in the past that his inclination is to support congressional efforts to close the loophole for hedge funds and private equity firms, based on what he's seen so far.

Other Democratic candidates have also taken in vast sums from the securities and private equity sector. According to the Center for Responsive Politics, Sen. Chris Dodd, D-Conn., raised $1,280,000 from individuals in that group in the first three months of the campaign.

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