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CNN "Erin Burnett Outfront" - Transcript: Tax Loopholes

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BURNETT: Joining me now is Democratic Congressman Brad Sherman. He sits on the House Financial Services Committee. He's also a certified public accountant.

So you can take issue with anything I described if you don't like it. Let me ask you, you say lobbyists are to blame for this. The president said he was going to get rid of it in his campaign. I hear Democrats want to get rid of it. Republicans now want to get rid of it.

Yet, every year they lose out to lobbyists. How come?

REP. BRAD SHERMAN (D-CA), FINANCIAL SERVICES COMMITTEE: Well, I think the lobbyists for the carried interest exclusion are pretty successful. But there's also a certain inertia here in Washington. We haven't plugged a tax loophole in 10, 15 years.

There's also a wing of the Republican Party that is an opposed to anything that increases taxes on anybody, including any provision that just plugs a tax loophole that's being exploited.

BURNETT: So what do the lobbyists do on that part, on their side of things, to keep winning this battle? I mean, what are the tactics they use?

Because I see the press relations they put out and they say, look, the private equity industry invests in new companies, in hundreds of billion dollars of new companies. OK, that's true. But it doesn't solve the problem or have anything to do with this loophole.

So, what are the lobbyists doing to keep this loophole open?

SHERMAN: Well, they can -- first, they start with as a given a questionable proposition. That is money made by money should be taxed at a lower rate than money made through hard work.

Then, they conflate the two and say the entire hedge fund is investing in business. Therefore, not only those who invest in the hedge fund but those who manage the hedge fund should get the benefit.

Finally --

BURNETT: That's where you lose me. I don't understand why anybody who manages the money, that's their job every day.

SHERMAN: It is, indeed. And then they bank on the two very powerful things in this town. One is inertia and the tendency of us not to get things done, and the other is an ideology in a big wing of the Republican Party, not Dave Camp who's chair of the Ways and Means Committee, but others.

BURNETT: He wants to close it, yes.

SHERMAN: Yes. He wants to close part of this. He wants to close about a third of it as much as Obama.

BURNETT: OK.

SHERMAN: But there's a big chunk of the Republican Party that if they said, that is an egregious tax loophole, they still wouldn't want to close it.

BURNETT: All right. I hear you on that. But it's not just that wing of the Republican Party, although you're right. The president is part of this. He's been beating his drum on this since before he took office. I mean, I want to play for our viewers the promise he made on the campaign trail back on September 18th, 2007.

(BEGIN VIDEO CLIP)

OBAMA: We will also turn the page on an approach that gives repeated tax cuts to the wealthiest 1 percent of Americans even though they don't need them and did not ask for them. We've lost the balance between work and wealth. I will close the carried interest loophole.

(END VIDEO CLIP)

BURNETT: All right. If that was (AUDIO GAP), you know, he hasn't done it. He puts it in his budget but he's willing to compromise and not close it every single year, too. I mean, that's guilty too, isn't it?

SHERMAN: Well, there is no compromise in the sense there's no piece of legislation that has to pass. We have to keep the government open, compromises were made on that. We have to pay our bills and avoid blowing the debt limit. We've made the compromises.

The House of Representatives has not passed a major piece of tax legislation. So, it's not like the president gives in on this be provision and agrees to go with a provision. There's no provision. It's not -- if there's no deal, then the loophole remains.

So, the president has no pressure point. It's not like he can wake up and say, well, number one thing on my list is closing this. Therefore it has to be closed. Tax legislation has to start in the House.

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