McCain's Barbarians at the Gate

By Jonathan Weisman
For a presidential candidate running against Wall Street greed, Sen. John McCain's selection of titans of finance to discuss the ailing economy with this morning did little to underline his message.

Gathered around McCain's U-shaped table was Stephen Schwarzman, co-founder of the private equity giant, Blackstone Group, Henry Kravis, the takeover artist made famous in "Barbarians At The Gate," and John Thain, who took control of Merrill Lynch as it stumbled into the subprime crisis -- and then steered it into the maw of Bank of America during investment banking's darkest week.

Schwarzman has recently become the poster child in a Washington debate over what many consider to be the mother of all tax dodges, "carried interest." He received a $350.2 million in cash distributions last year, a 12-percent pay cut from 2006. But the clincher is what he paid in taxes.

On much of that income, Schwarzman's tax rate was a secretary-level 15 percent, not the 35 percent income tax rate that regular rich folks pay. That is because private equity traders like Schwarzman structure their fees as capital gains and are taxed accordingly. But the capital gains come from their clients' money, not their own -- making that income is effectively compensation for services rendered.

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