Slipping Bachmann seeks jolt for GOP campaign

DES MOINES, Iowa (AP) — Republican Michele Bachmann's presidential campaign fell just as quickly as it rose. Now, she's looking to Iowa — at the expense of other early voting states — to get back on track.

It's a strategy of necessity for the Minnesota congresswoman. A victory in Iowa this winter would keep her afloat in the GOP nomination fight; a loss would almost certainly end her bid.

"We know that when Michele is in Iowa, she wins," said Bachmann's Iowa campaign chairman, Kent Sorenson. "If she's here, she'll win Iowa."

That explains why, starting this weekend, Bachmann plans to campaign almost exclusively in the state as she tries to reassert herself in a race that's become a two-candidate contest between Texas Gov. Rick Perry and former Massachusetts Gov. Mitt Romney.

She's in a far different position than she was earlier this summer when she entered the race and seemingly overnight began hovering atop state and national public opinion polls. In August, she rode that wave of popularity to an Iowa straw poll victory. But that same day, Perry became a candidate. He quickly filled the role of the GOP field's insurgent outsider, stalled Bachmann's momentum and infringed on her base of support.

Since then, Bachmann has faced criticism from voters and activists for appearing too scripted. She's also shuffled her top campaign leadership. And she found herself eclipsed in Wednesday's debate in California after figuring prominently in previous ones and winning praise for her poise.

Her newfound strategy calls for an intense focus on Iowa, where she already has a strong organization and a natural base of support with evangelical Republicans, home-school advocates and tea partyers.

The hope among Bachmann advisers is that an Iowa victory could propel her to the South Carolina primary, where Republican voters resemble Iowa's heavy segment of Christian conservatives. She spent a chunk of the past month in the state, as well as in Florida, courting tea party activists and other conservatives.

But the renewed focus on Iowa — she plans to spend much of the next five months there — means Bachmann is likely to bypass Nevada's under-the-radar caucuses and remain scarce in New Hampshire, where she has almost no organization in place for the first-in-the-nation primary.

There are scheduling obstacles she must contend with though: Bachmann is making time for two upcoming debates in Florida and a previously scheduled speech to the state GOP convention in California next week. Plus, she could be forced back to Washington on short notice for votes on emergency jobs measures.

The next few weeks represent a critical period for Bachmann. She is hoping to right her campaign and take advantage of a time when Perry is facing heightened scrutiny that's certain to come with more debates this month and the end of his first fundraising quarter at the end of September.

Perry too is organizing aggressively in Iowa, and aides to Romney, who is not campaigning aggressively in the state, say he may step up his Iowa presence to confront Perry sooner in the nominating chase. That could complicate Bachmann's effort to dominate Iowa at a time when she is adjusting to new campaign leadership.

Ed Rollins announced Sunday he was stepping aside as Bachmann's campaign manager and into an advisory role. Rollins' deputy, David Polyansky, also quit the campaign after being passed over to take over the day-to-day management.

Republican observers viewed the moves as a reaction to Bachmann's fade in polls. She has slipped to the low single digits in national polls and now trails Perry in Iowa surveys.

The staff shake-up provides Bachmann with an opportunity to shed the image of an over-managed celebrity.

Some Iowa Republicans recently criticized Bachmann for staying on her campaign bus during a county GOP dinner while Perry was speaking. The episode fed a budding narrative that Bachmann pays more attention to stagecraft than mingling with activists, something that doesn't sit well with Iowans used to politicians doing retail campaigning.

"Her campaign has to drop this rock-star motif," said Judd Saul, an undecided Iowa Republican who attended the event last month. "She won the straw poll but needs to dig in, shake our hands, get to know us."

Other would-be backers have grown frustrated by what they view as a sound-bite campaign.

Retired nurse Ellen Harward, a Myrtle Beach Republican, was attracted to Bachmann after seeing her at a late June rally. But by this week, Harward had not decided whether she would back her in the South Carolina primary, the first Southern contest.

"She's starting to sound like a broken record," Harward said. "If she could come out and show something that would set her apart from everyone else, it would make people start looking at her in a different way. It might give her some oomph her campaign needs."

The return of Congress, which has spending and economic issues on its plate, also could give Bachmann a chance to reclaim the spotlight and rekindle the populist spark that built her into a surprise contender. Over the summer, she used her role as a vocal critic of the Obama administration and the GOP leadership in Congress to rail against deal-making in Washington, especially on raising the debt ceiling. She opposed it.

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9:19 AM | 0 comments

Could President Obama End Carried Interests Without Congress ?

Much of the debate about the favorable tax treatment of hedge fund managers and venture capitalists is ideological.  There is either resentment or a spirited defense of the free-enterprise system.  There is little or no understanding as to what makes the tax break work in most discussions.  I suspect that many people think there must be a section of the law dedicated to hedge fund managers that they managed to slip into a defense bill or something.  Much as I love conspiracy theories, it is nothing like that.  The favorable treatment is based on fundamental principles of partnership taxation.  I explained that here.

My big concern is that the legislative fix will do collateral damage.  It adds a fairly long  section to the Internal Revenue Code and creates a new category.  It is also not limited to hedge fund managers and venture capitalists - neither of which are tax terms.  I explained that here.

When I started this my editor, Janet Novack, pointed me to a piece in the Wall Street Journal by Laura Sanders.  It was mainly about comments made by Michael Graetz, a former treasury official and now tax professor at Columbia University.  He pointed to a tax court decision that was won by venture capitalist Todd A. Dagres.  I had mentioned the case previously.  Mr. Dagres had roughly a 2 million dollar salary.  He had about 40 milllion in long term gains  mostly from carried interests.  He had lost over 3.5 million on a loan that he had made to somebody who helped find him deals.  He thought he should get an ordinary deduction for that and the Court agreed, because all that capital gain that he had was really business income and the loan was related to that.  Professor Graetz indicated that following that logic all the income should be ordinary and the IRS should turn this minor defeat into a major triumph.  I wouldn't want to be Mr. Dagres at the venture capital picnic if Professor Graetz is right and the IRS picks up on it.  "You killed carried interests so you could save a lousy five hundred grand or so ? Gimme a break."

I was criticized on another site (If you are going to knock me at least do it on Forbes) for being unclear as to what my thoughts were on the merits of this particular reform.  That is whether it is a good thing or a bad thing that hedge fund managers and venture capitalists pay capital gains on their share of their funds capital gains as opposed to getting paid some sort of ordinary income incentive bonus.  The unclarity comes from my tendency to satirize the overblown rhetoric that gets into these discussions.  I started off my most reccent piee with "Carried interest is the nefarious concepct that the evil hedge fund managers use ....."  I think the other person who read that piece might have liked it though.  So I will make my position clear on whether it is a good idea or a bad idea to make hedge fund managers and venture capitalits pay taxes at ordinary rates on their carried interest gains.  I have none.

With respect to the proposed legislation, I think that it is very bad legislation.  On the other hand it will mean more work for people like me, so it can't be all that bad.

There is, however, an approach that could end the benefit without adding three thousand words to the Code.  It does not require the cooperation of Congress.  There is a regulation 1.701-2 that governs using the partnership form in a way that is inconsistent with its purpose to:

permit taxpayers to conduct joint business (including investment) activities through a flexible economic arrangement without incurring an entity-level tax

The regulation goes on to list good and bad resons for using the partnership form. Venture capital funds and hedge funds do not have to be organized as partnerships in order to do what they do.  You could have some sort of co-ownership.  Frequently people prefer co-ownerships, since they can often be simpler.  Why do venture capital funds and hedge funds organize as partnerships ? Well one reason is so that the managers can get captial gains treatment on their incentive compensation.  If that is not a good reason, the IRS can add it to the "bad partnership" list and it is done.

That approach is totally in the executive branch.  I doubt it is as simple as the President getting on the phone to the Commissioner and telling him he wants him to add another example to the list in 1.701-2.  There is probably a political calculus to this that is beyond my feeble understanding.  By making it another girdlock issue he gets to rail against Congress.  Congress gets to say they are standing up for free enterprise.  If the regulations were tweaked in the way I suggested there would be litigation.  One way to do it might be for it to be prospective so that it would only apply to new deals.

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3:03 AM | 0 comments