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Budget Deal: Yes to Carried Interest, No to Unemployment Insurance

NEW YORK (TheStreet) -- A bipartisan budget agreement brokered by Rep. Paul Ryan (R., Wis.) and Sen. Patty Murray (D., Wash.) late Tuesday underscores that it has never been a better time to be a private-equity manager and a worse time to be among the nation's unemployed.

Tuesday's budget deal appears to allow the government to finance itself through September 2015, while targeting $23 billion in deficit reduction and eliminating about $63 billion in across-the-board domestic and military spending cuts.

This, folks, is the deal we have been waiting for for more than two years, and apparently was the political lightning rod that led to a downgrade of the country's credit rating and a near default. Apparently, lawmakers in Washington are now patting themselves on the back for the bipartisan deal.

If the Ryan and Murray budget deal indicates that the gears of government may soon begin to turn again, amid much needed legislation on immigration reform, taxation and education, then the compromise could represent positive momentum in Washington after a long freeze.

Unfortunately, the deal's lack of ambition, or even relevance in today's economic environment, indicates that Washington will continue to operate with only the most short-term vision. That perpetuates a political climate that benefits the ultra-wealthy, while casting further uncertainty on the working class and the poor.

Per Tuesday's deal, there will only be a few weeks for lawmakers to extend unemployment insurance to the long-term unemployed. Furthermore, first steps in negotiating a chasm between Democrats and Republicans on the government's finances do not target the carried interest, a system that allows many private-equity and hedge fund owners to be taxed at the capital gains rate and not ordinary income tax rates.

An extension of assistance to the long-term unemployed is needed by Dec. 28, otherwise more than 1 million Americans could lose their benefits. Cutting those benefits would save $25 billion for the federal government, while further undermining the economic distress of those hit hardest by the Great Recession.

Unemployment insurance usually lasts 26 weeks, however, in the wake of the financial crisis federal and state lawmakers implemented policies that effectively extended the insurance to 99 weeks. Those could end if lawmakers don't approve another stopgap extension.

Such a callous move would come as cities like New York and Los Angeles report double-digit, year-over-year increases in homelessness.

While the poor and economically afflicted await a last-minute reprieve from Washington, private-equity and hedge fund managers taxed under a carried interest regime will have nothing to fret over this holiday season. Carried interest allows such funds to be taxed at the capital gains rate of 20%, even if they advertise to prospective investors that they are busy getting their hands dirty in making turnaround investments.

Increasing the carried interest tax rate to that of ordinary income tax rates is forecast as generating $16 billion in federal revenue, over a decade.

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