Max Baucus is not exactly a fiery populist, but even he acknowledges that bankers will see their taxes rise in the near future.

“I don’t think there’s much doubt that there will be a bank tax,” Senate Finance Committee Chairman Max Baucus told POLITICO. And more than ever, the Montana Democrat signaled that Congress will also crack down on wealthy hedge fund and private equity partners who shelter their income as capital gains — taxed at half the top 35 percent rate.

Three times in recent years, the House has voted to rein in the so-called carried interest provision — only to meet Senate resistance. That’s changing with the pressure to find revenues to pay for other priorities such as a $35 billion measure extending popular tax provisions for businesses and families.

“I’ve asked my staff to look at alternatives … Carried interest will probably be part of the offsets,” said Baucus. “We were thinking of putting it on later as part of tax reform. But we’re here; we’re here now.”

At issue is that large “extenders” bill with all the tax breaks, in addition to an extension for unemployment benefits and the 65% COBRA subsidy. The Senate used $35 billion worth of offsets in their version of this bill that already passed in the reconciliation sidecar for health care, so they have to look for something else. Chuck Schumer, who has defended that carried interest provision with more vigor than anyone over the past few years, pronounced himself open to closing the loophole two weeks ago. In order to get the extenders bill across, offsets will have to come from somewhere, and that hedge fund loophole is an inviting target.

This, by the way, is how PAYGO can get used to progressive ends. It makes no sense for hedge fund managers to have their massive incomes taxed at a 15% rate, but without the pressures of having to find offsets, Congress would probably have been content to neglect it. Now they must come up with some revenue.

As for the bank tax, this is something the President proposed – as per the TARP statute – to recoup lost revenue from the program. It’s probably smaller than it needs to be, but it’s likely to happen, and it could happen sooner rather than later:

Second — and fast closing — is President Barack Obama’s proposed bank tax. Baucus wants to keep the bank levy separate from the current debate over financial reform, thereby having the chance to claim the tax revenues as an offset. But the Congressional Budget Office is raising red flags that the Senate reform package will be $17 billion in the red if Democrats drop a $50 billion industry-financed “orderly liquidation fund” opposed by Republicans.

I like the idea of Max Baucus scrambling to find ways to pay for things, and having to rely on hedge fund managers and the biggest banks. That gives me a smile.

David Dayen

David Dayen