Taxes and Billionaires: The “Carried Interest” Loophole Has To Go
The House speaker, John Boehner, suggests that the Republican threat of letting the United States default on its debts is driven by concern for jobs for ordinary Americans.
“We cannot miss this opportunity,” he told Fox News. “If we want jobs to come to America, we’ve got to give American businesspeople the confidence to invest in our economy.”
So take a look at one of the tax loopholes that Congressional Republicans are refusing to close — even if the cost is that America’s credit rating blows up. This loophole has nothing to do with creating jobs and everything to do with protecting some of America’s wealthiest financiers.
If there were an award for Most Unconscionable Tax Loophole, this one would win grand prize.
Wait, wake up! I know that “tax policy” makes one’s eyes glaze over, but that’s how financiers have gotten away with paying a lower tax rate than their chauffeurs or personal trainers. Tycoons have bet for years that the public is too stupid or distracted to note that in many cases they’re paying just a 15 percent tax rate.
What’s at stake is the “carried interest” loophole, and President Obama is pushing to close it. The White House estimates that this would raise $20 billion over a decade. But Congressional Republicans walked out of budget talks rather than discuss raising revenues from measures such as this one.
The biggest threat to the United States this summer probably doesn’t come from Iran or Libya but from the home-grown risk that the nation will default on its debts. We don’t know the economic consequences for America or the world, and some of the hand-wringing may be overblown — or maybe not — but it’s reckless of Republicans even to toy with such a threat.
This carried interest loophole benefits managers of financial partnerships such as hedge funds, private equity funds, venture capital funds and real estate funds — who are among the highest-paid people in the world. John Paulson, a hedge fund manager in New York City, made $4.9 billion last year, top of the chart for hedge fund managers, according to AR Magazine, which follows hedge funds. That’s equivalent to the average per capita income of 184,000 Americans, according to my back-of-envelope calculations based on Census Bureau figures.
Mr. Paulson declined to comment on this tax break, but here’s how it works. These fund managers are compensated mostly with a performance bonus of 20 percent or more of the profits they make. Under this carried interest loophole, that 20 percent is eligible to be taxed at the long-term capital gains rate (if the fund’s underlying assets are held long enough) of just 15 percent rather than the regular personal income rate of 35 percent.
This tax loophole is also intellectually vacuous. The performance fee is a return on the manager’s labor, not his or her capital, so there’s no reason to give it preferential capital gains treatment.
“The carried interest loophole represents everyone’s worst fear about the tax system — that the rich and powerful get away with murder,” says Victor Fleischer, a law professor at the University of Colorado, Boulder, who has written about the issue. “Closing the loophole won’t fix the budget by itself, but it gets us one step closer to justice.”
At a time when the richest 1 percent of Americans have a greater collective net worth than the entire bottom 90 percent, there are other ways we could raise money while also making tax policy more equitable. The White House is backing some of them in its negotiations with Congress, but others aren’t even in play.
One important proposal has to do with founder’s stock, the shares people own in companies they found. Professor Fleischer has written an interesting paper persuasively arguing that founder’s stock is hugely undertaxed. It, too, is essentially a return on labor, not capital, and shouldn’t benefit from the low capital gains rate.
Likewise, Europe is moving toward a financial transactions tax on trades made in financial markets. That is something long championed by some economists — especially James Tobin, who won a Nobel Prize for his work — and it would also raise tens of billions of dollars at a time when it is desperately needed. It makes sense.
The larger question is this: Do we try to balance budget deficits just by cutting antipoverty initiatives, college scholarships and other investments in young people and our future? Or do we also seek tax increases from those best able to afford them?
And when Congressional Republicans claim that the reason for their recalcitrance in budget negotiations is concern for the welfare of ordinary Americans, look more closely. Do we really want to close down the American government and risk another global financial crisis to protect the tax bills of billionaires?
By: Nicholas Kristoff, Op-Ed Columnist, The New York Times, July 6, 2011
“Norquistism”: Republican Zeal Runs Amok
To watch Republicans in action today, in Washington and in legislatures around the country, is to be reminded of Casey Stengel’s amazed query to the 1962 Mets, whom he had the cosmic misfortune to manage: “Can’t anybody here play this game?”
In California, in Minnesota and here on Capitol Hill, Republican legislators in divided governments seem incapable of taking half or even three-fourths of a loaf — of recognizing when they’ve won. By holding out for more when they’ve already attained plenty, they run the risk of coming away with nothing for themselves or inflicting avoidable calamity on everyone else. As Daniel Bell once said of American socialists, they act as if they’re in but not of the world.
In California, for instance, where Republicans hold just over a third of the seats in each legislative house — enough to block any tax increase, which requires two-thirds support — Democratic Gov. Jerry Brown told reporters on June 16 that he was willing to submit to voters proposals to reduce both state pensions and business regulations if Republican lawmakers agreed to let voters also decide whether to extend some tax increases. Brown’s goal was to avoid having to cut more deeply into spending on schools, universities and medical care. California businesses, which have complained of overregulation for decades, were hot for the deal, but the
Republicans refused to budge. In consequence, in the state budget passed last week, without the tax extensions, the state’s public universities will have to raise tuition roughly 10 percent (on top of another 10 percent increase that will take effect in September); and the poor will pay more for medical care. Pensions and regulations will remain unrevised.
What makes the California Republicans’ intransigence so loony — “idiotic” is, I think, not too strong a term — is that they are likely to lose legislative seats as soon as next year as a result of redistricting, and they are sure to lose legislative seats over the next decade because of their ongoing estrangement of the state’s Latino voters. When Republicans drop beneath one-third representation in the statehouse, Democrats will be able to raise taxes without their support. In other words, this may well have been Republicans’ last chance to extract concessions they considered vital. And they blew it off.
What we have here is an extreme world view — let’s call it Norquistism — that ensures impasse, paralysis or perverse outcomes whenever control of government is divided. It’s the doctrine preached by GOP activist and lobbyist Grover Norquist, who trots around the country collecting pledges from GOP candidates and elected officials that commit them to never, ever raise taxes, no matter what they may be offered in return. In Minnesota, a state with a Democratic governor and a Republican legislature, Gov. Mark Dayton sought to raise taxes on only the relative handful of Minnesotans with annual incomes in excess of $1 million. The legislature opposed that, insisting on cuts (including to services for those with disabilities) that Dayton wouldn’t countenance. Absent a budget, most state services in Minnesota closed down on July 1; it’s not clear when, or how, some compromise can be reached to reopen the state.
In the nation’s capital, Republicans also seem to have lost their capacity for compromise — even when that compromise looks to be a GOP victory. Senate Republicans, for instance, have been urging President Obama since before he took office to finalize three trade accords — with South Korea, Colombia and Panama — and bring them before Congress. Obama has now done so, asking in return only that Republicans approve the renewal of Trade Adjustment Assistance, a program that aids workers who lose their jobs as a result of these kinds of trade deals. But Republicans are balking — boycotting last week’s meeting of the Senate Finance Committee at which these treaties were to be taken up — because they don’t like TAA. This is hardly a major program, mind you, but the GOP’s loathing of any program that provides government assistance to workers (who really shouldn’t need any assistance, as free trade is good for us all) has eclipsed its long-term commitment to American corporate priorities.
When zeal runs amok, the sense of proportion suffers. Today’s Republicans remind me of some leaders of the American Communist Party whom I got to know decades ago, after they’d left the fold. “We believed in the party line, in its infallibility, so completely,” one ex-commie told me, “that we’d forget the larger strategy for the momentary tactic.” So it was with Communists of yore; so it is with Republicans today.
By: Harold Meyerson, Opinion Writer, The Washington Post, July 5, 2011
Conservatives Outraged Over Prosecution Of Terror Suspect In Criminal Court
A decidedly unremarkable event by past standards occurred yesterday. The U.S. government brought criminal terrorism charges in a New York City courtroom against a Somali man captured in the Gulf of Aden. This is the first prosecution in criminal court to happen during the Obama administration, but such cases have been a common and extremely successful feature of U.S. policy that passed without notice for decades. This move, however, has provoked the now-typical reaction from conservatives who reflexively oppose every Obama administration action as a radical departure from U.S. norms that threatens the security of the nation. That’s ridiculous, and these conservatives risk U.S. security by pushing to remove a very powerful weapon against terrorists.
Ahmed Abdulkadir Warsame was reportedly seized in April onboard a ship in the Gulf of Aden between Somalia and Yemen. He is charged with conspiracy and providing material support to terrorist groups—in this case the Somali-based al-Shabaab and the Yemeni-based Al Qaeda in the Arabian Peninsula, or AQAP.
The Obama administration revealed that Warsame was held on a U.S. Navy ship for two months and interrogated by the High-Value Interrogation Group, the team drawn from numerous frontline U.S. government agencies established by the Obama administration specifically to question suspected high-ranking terrorists. This produced significant information outlining a deeper connection between al-Shabaab and AQAP than previously known. U.S. officials reportedly discussed all options for Warsame’s future and unanimously decided on criminal prosecution.
Warsame’s trial in New York City is like many previous instances when individuals were seized abroad and brought to the United States to face terrorism charges in criminal court. The most recent similar case dates from the Bush administration, when Afia Siddique was detained in Afghanistan by U.S. troops in 2008 for attempting to shoot U.S. military personnel. She was quickly brought to New York, convicted, and sentenced to 86 years in prison. During the Clinton administration, Mir Aimal Kasi stood outside CIA headquarters in Virginia in 1995 and murdered two CIA employees as they drove into work. He was captured in Pakistan in 1997 and brought to Virginia for trial, convicted of murder, and executed in 2002.
Neither of these cases or the others like them produced negative responses from conservatives. Once the Obama administration did it, however, conservatives were outraged.
Rep. Buck McKeon (R-CA), chairman of the House Armed Services Committee, said that “Congress has spoken clearly multiple times … of the perils of bringing terrorists onto U.S. soil.”
What perils? There has never been a terrorist attack related to the trial or incarceration of terrorists in the United States.
Sen. Susan Collins (R-ME) said, “A foreign national who fought on behalf of al Shabaab in Somali—and who was captured by our military overseas—should be tried in a military commission, not a federal civilian court in New York or anywhere else in our country.”
Forcing all prosecutions of suspected terrorists into military commissions has political appeal because it sounds tougher than using criminal courts. But let’s look closer at that military commission option.
First off, Warsame has been charged only with conspiracy and military support for terrorism. Those offenses are available in military commissions but neither has ever been considered a war crime. For that reason, the Department of Justice believes that convictions on those offenses in military commissions are susceptible to being overturned on appeal.
Further, the extremely short record of military-commissions cases based on conspiracy or material support reveals that those convicted receive short sentences and are quickly transferred back to their home countries and released. The most famous of these cases was that of Salim Hamdan, Osama bin Laden’s driver, who was sentenced to only five additional months in custody. The Bush administration sent him home to Yemen soon after.
U.S. criminal courts, on the other hand, have an excellent record at convicting terrorists. In a case analogous to Hamdan’s, Ali Asad Chandia was convicted in 2006 of providing material support for terrorism for driving a member of Lashkar-e-Taibi from Washington National Airport to spots around the D.C. area. His sentence was 15 years. So bin Laden’s driver got five months from a military commission but driving an unknown member of a lesser-known terrorist group resulted in a 15-year sentence in a criminal court.
Since the 9/11 attacks, U.S. criminal courts have locked up more than 200 individuals on terrorism charges while military-commissions convictions can be counted on one hand.
American presidents of both parties have relied on criminal courts for decades because they are extremely effective at convicting suspected terrorists and have an excellent record of producing reliable and actionable intelligence information. Today’s conservatives are trying to deny the U.S. government this valuable tool because they are more interested in using political weapons against President Barack Obama than counterterrorism weapons against America’s enemies.
By: Ken Gude, Managing Director of the National Security and International Policy Program, Center for American Progress, July 6, 2011
112th Congress Is One Of The Least Productive In Years
Freshman Republican Sen Kelly Ayotte is often asked what surprises her most about serving in the esteemed upper chamber of Congress. The earnest, 43-year-old conservative from New Hampshire has come up with an uncomplicated reply:
“I thought that we would vote on a lot more bills.”
She most recently offered this answer from her Senate office at 3:45 on a Thursday afternoon. Senate Majority Leader Harry Reid (D-Nev.) had just announced that the Senate was done voting for the week. Senators wouldn’t be needed until the following Tuesday.
In the lobby outside Ayotte’s office, a television tuned to C-SPAN was showing an empty Senate chamber. In offices up and down the hallway, aides were booking flights home.
So it goes these days on Capitol Hill, a place of many headlines and much drama but not a whole lot of legislating.
The 112th Congress is on pace to be one of the least productive in recent memory — as measured by votes taken, bills made into laws, nominees approved. By most of those metrics, this crowd is underperforming even the “do-nothing Congress” of 1948, as Harry Truman dubbed it. The hot-temper era of Clinton impeachment in the 1990s saw more bills become law.
There is no shortage of explanations for the apparent lack of legislative success. Political observers see hyperpartisanship and perpetual campaigning that makes once-routine steps politically perilous.
Experts cite the rise of a brand of conservatism that aims for a government that governs least. Historians note that it’s not unusual for Congress to take a breather after a period of hyperactivity like the one Washington completed last year.
Lawmakers have a long list of politically tinged reasons: Republicans who control the House blame Democratic leaders in the Senate for refusing to hold votes that might prove problematic for members up for election next year; Democratic leaders in the Senate blame Republicans in both chambers for not working with them on legislation that has a shot of winning a presidential signature.
Perhaps the only group seeing a bright side is the Democratic minority in the House, which supports virtually none of the bills voted on in that chamber but doesn’t have to worry about them ever becoming law.
President Obama called out Congress when he argued last week that members have to “be here” to make progress on its top priority: negotiating a deal on the debt that can pass the Republican-led House and Democratic-led Senate.
But it’s not necessarily time spent in Washington where this Congress is falling behind. It’s how little it accomplishes when it’s here.
“I put it this way: no harm done yet,” said Rep. Henry A. Waxman (D-Beverly Hills). “But nothing accomplished yet — with a lot of ominous things that still may happen.”
To be sure, lawmakers are grappling with big issues, such as the Aug. 2 deadline to raise the government’s debt ceiling. Action on that front, however, has been behind closed doors in on-again off-again budget negotiations. Nearly all other major priorities — tax reform or a 2012 budget — have been delayed while lawmakers work on a deal.
And so the legislative trickle has slowed to a drip. From January until the end of May, the last date for which comparable statistics are available, 16 bills had become law — compared with 50 during that period last year, or 28 in 2007, also a time of divided government.
The Senate has taken 84 “yea and nay” votes and the House 112, roughly half the number as in 2007. The Senate by the end of May had confirmed just over half the administration’s nominees; recent congresses typically have been near the end of the list by this point.
The bills that have passed this year largely have been extensions of expiring laws. Also on this year’s list was a must-pass deal to keep the government from shutting down, which essentially was a piece of unfinished business from the previous Congress.
Then there were three laws naming public buildings, a resolution appointing a member of the Smithsonian Institution and one extending the life of the Ronald Reagan Centennial Commission.
The inertia might be best observed at the Senate Budget Committee.
When Ayotte was named to the committee after Sen. John Ensign (R-Nev.) abruptly resigned in April, it was a coveted “get” for a conservative who won office by promising to cut spending. She came out of her first planning meeting with a list of proposals, only to hear Reid say Democrats would not introduce a budget until after the deficit talks.
“I got appointed. I was excited about it. I had one good meeting and then it was done. That’s been my experience on that committee,” Ayotte said. The committee has not met since April 5.
But it’s not just Democrats putting a drag on legislative activity. Republicans on Thursday boycotted a hearing on a series of free trade deals, derailing what was considered a bipartisan effort.
Meanwhile, Sen. Ron Johnson (R-Wis.) held his own protest to highlight the Democrats’ missing budget. Although Democrats say a budget plan is coming next week, Johnson used a procedural move to keep Reid from scheduling a vote on a resolution authorizing military involvement in Libya — the rare issue likely to find bipartisan agreement.
The “tea party” freshman, who says he’s used to working in business “where you focus on accomplishing things,” said he realized he was stalling “a very important issue.”
“But the fact of the matter is it simply doesn’t address the fact that we’re bankrupting this nation,” he said.
Much of this has been taken in stride by folks who’ve been around for a while.
“If you’re not comfortable with delay, frustration and impatience, get out of the Senate,” said Sen. Richard J. Durbin (D-Ill.). “It’s the nature of the institution, but I think we’ve taken it to an art form.”
At the other end of the building, the House isn’t exactly breaking records.
The 50 bills it has passed in the first five months of 2011 represent the lowest such number in more than 15 years. Republicans’ anti-Washington rhetoric translated into a schedule intended to keep lawmakers out of Washington. The result has been fewer days in session and fewer votes.
Reid, borrowing the critique usually aimed at him, recently complained that Senate bills — a patent reform measure and reauthorization of the Federal Aviation Administration — had fallen into the “big black hole” of the House.
In fact, each side is piling bills on the other’s doorstep while they wait for a deal to come out of the debt talks.
That package could prove that legislative activity doesn’t necessarily correspond to substance.
“Obviously, if they reach some kind of deal that results in a sweeping change in the scope of government and the tax rates, they don’t have to do much else to go down as a consequential Congress,” said Norman Ornstein, an expert on Congress at the American Enterprise Institute for Public Policy Research. “Most everywhere else, their influence is puny.”
With an Aug. 2 deadline, it may take much of the summer to find out. After that, both bodies leave for a long summer break and return after Labor Day.
By: Kathleen Hennessey, Staff Writer, Chicago Tribune, July 3, 2011
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 