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“A Nation Of Takers?”: Demanding Cuts In Public Assistance To The Poor, While Ignoring Public Assistance To The Rich

In the debate about poverty, critics argue that government assistance saps initiative and is unaffordable. After exploring the issue, I must concede that the critics have a point. Here are five public welfare programs that are wasteful and turning us into a nation of “takers.”

First, welfare subsidies for private planes. The United States offers three kinds of subsidies to tycoons with private jets: accelerated tax write-offs, avoidance of personal taxes on the benefit by claiming that private aircraft are for security, and use of air traffic control paid for by chumps flying commercial.

As the leftists in the George W. Bush administration put it when they tried unsuccessfully to end this last boondoggle: “The family of four taking a budget vacation is subsidizing the C.E.O.’s flying on a corporate jet.”

I worry about those tycoons sponging off government. Won’t our pampering damage their character? Won’t they become addicted to the entitlement culture, demanding subsidies even for their yachts? Oh, wait …

Second, welfare subsidies for yachts. The mortgage-interest deduction was meant to encourage a home-owning middle class. But it has been extended to provide subsidies for beach homes and even yachts.

In the meantime, money was slashed last year from the public housing program for America’s neediest. Hmm. How about if we house the homeless in these publicly supported yachts?

Third, welfare subsidies for hedge funds and private equity. The single most outrageous tax loophole in America is for “carried interest,” allowing people with the highest earnings to pay paltry taxes. They can magically reclassify their earned income as capital gains, because that carries a lower tax rate (a maximum of 23.8 percent this year, compared with a maximum of 39.6 percent for earned income).

Let’s just tax capital gains at earned income rates, as we did under President Ronald Reagan, that notorious scourge of capitalism.

Fourth, welfare subsidies for America’s biggest banks. The too-big-to-fail banks in the United States borrow money unusually cheaply because of an implicit government promise to rescue them. Bloomberg View calculated last year that this amounts to a taxpayer subsidy of $83 billion to our 10 biggest banks annually.

President Obama has proposed a bank tax to curb this subsidy, and this year a top Republican lawmaker, Dave Camp, endorsed the idea as well. Big banks are lobbying like crazy to keep their subsidy.

Fifth, large welfare subsidies for American corporations from cities, counties and states. A bit more than a year ago, Louise Story of The New York Times tallied more than $80 billion a year in subsidies to companies, mostly as incentives to operate locally. (Conflict alert: The New York Times Company is among those that have received millions of dollars from city and state authorities.)

You see where I’m going. We talk about the unsustainability of government benefit programs and the deleterious effects these can have on human behavior, and these are real issues. Well-meaning programs for supporting single moms can create perverse incentives not to marry, or aid meant for a needy child may be misused to buy drugs. Let’s acknowledge that helping people is a complex, uncertain and imperfect struggle.

But, perhaps because we now have the wealthiest Congress in history, the first in which a majority of members are millionaires, we have a one-sided discussion demanding cuts only in public assistance to the poor, while ignoring public assistance to the rich. And a one-sided discussion leads to a one-sided and myopic policy.

We’re cutting one kind of subsidized food — food stamps — at a time when Gallup finds that almost one-fifth of American families struggled in 2013 to afford food. Meanwhile, we ignore more than $12 billion annually in tax subsidies for corporate meals and entertainment.

Sure, food stamps are occasionally misused, but anyone familiar with business knows that the abuse of food subsidies is far greater in the corporate suite. Every time an executive wines and dines a hot date on the corporate dime, the average taxpayer helps foot the bill.

So let’s get real. To stem abuses, the first target shouldn’t be those avaricious infants in nutrition programs but tycoons in their subsidized Gulfstreams.

However imperfectly, subsidies for the poor do actually reduce hunger, ease suffering and create opportunity, while subsidies for the rich result in more private jets and yachts. Would we rather subsidize opportunity or yachts? Which kind of subsidies deserve more scrutiny?

Some conservatives get this, including Senator Tom Coburn, Republican of Oklahoma. He has urged “scaling back ludicrous handouts to millionaires that expose an entitlement system and tax code that desperately need to be reformed.”

After all, quite apart from the waste, we don’t want to coddle zillionaires and thereby sap their initiative!

 

By: Nicholas D. Kristof, Op-Ed Columnist, The New York Times, March 26, 2014

March 28, 2014 Posted by | Corporate Welfare, Poor and Low Income, Poverty | , , , , , , | 6 Comments

“An Epidemic Of Plutocrat Self-Pity”: Filthy Rich But Secretly Terrified, Inside The 1 Percent’s Sore-Winner Backlash

What explains the toxic mélange of entitlement and shame that’s driving the raging 1 percent sore-winner backlash? From Tom Perkins comparing the ultra-rich to Jews during “Kristallnacht,” to tycoon and newspaper-destroyer Sam Zell insisting “the top 1 percent work harder,” to investment banker Wilbur Ross proclaiming that “the 1 percent is being picked on for political reasons,” there’s an epidemic of plutocrat self-pity afoot. Just last week ex-CEO of Morgan Stanley John Mack told the media to “stop beating up on” CEOs Jamie Dimon and Lloyd Blankfein after they got obscene raises from JPMorgan Chase and Goldman Sachs.

The sore winner backlash is odd timing. There’s no longer any real movement to hike taxes on their income or their wealth, both of which are at all-time highs. President Obama has said an increase in tax rates is “off the table.” There’s no more discussion of the “Buffett Rule,” named for the Berkshire-Hathaway oracle who famously suggested his secretary should no longer pay higher rates than her boss.

Almost nobody talks about ending the “carried interest” loophole that lets hedge fund managers pay a shamefully low rate on much of what should be considered income; instead there’s a “boom in trusts passing carried interest to heirs,” the Wall Street Journal reports. Yes, they’ve figured out a way to pass that unfair advantage onto their heirs through new estate-tax dodges. Sadly, Occupy Wall Street has fizzled, so they can even enjoy Zuccotti Park unaccosted.

So why all the whining now? I read Kevin Roose’s buzzy “I crashed a secret Wall Street society” piece Monday morning looking for insight. You should read it if you haven’t. It’s a fun hate-read. You’ll come away thinking, if you don’t already, that a lot of these people are monsters.

Apparently the secret fraternity Kappa Beta Phi gathers the titans of Wall Street at the St. Regis once a year for a gala that celebrates their wealth and power and mocks the rest of us. New inductees to the fraternity are charged with putting on a variety show to entertain the long-tenured. The evening features all the standard bad behavior common to male societies, from sports teams to military units to the boys of the Bohemian Grove. Cross dressing? Check.

After cocktail hour, the new inductees – all of whom were required to dress in leotards and gold-sequined skirts, with costume wigs – began their variety-show acts.

Misogyny and homophobia? Check.

The jokes ranged from unfunny and sexist (Q: “What’s the biggest difference between Hillary Clinton and a catfish?” A: “One has whiskers and stinks, and the other is a fish”) to unfunny and homophobic (Q: “What’s the biggest difference between Barney Frank and a Fenway Frank?” A: “Barney Frank comes in different-size buns”).

Mocking the loser-outsiders, who paradoxically make their great wealth possible? Check.

One of the last skits of the night was a self-congratulatory parody of ABBA’s “Dancing Queen,” called “Bailout King.”

When Roose was discovered, he was ejected from the ballroom, and the story wound up in his new book, “Young Money,” a portrait of eight entry-level Wall Street traders, which came out today. The Kappa Beta Phi story was excerpted in New York magazine.

What the excerpt captured was the insularity and paranoia of plutocrats who band together to protect themselves from mostly imagined social approbation and self-doubt. As Paul Krugman has argued, they aren’t like the titans of yore who made things; they “push money around and get rich by skimming some off the top as it sloshes by.” They’ve gotten insanely wealthy mainly by rigging the rules of the game to privilege the world of finance, and it’s no wonder they’re worried the rest of us will someday figure that out.

The good news from Roose’s work? Among younger Wall Streeters, there’s more doubt than you might expect. The percentage of Ivy Leaguers going into investment banking straight out of college is dropping. Before it faded, Occupy Wall Street had an impact on some of his young subjects, Roose reveals. The bad news is, the people who have doubts about the morality of their enterprise, and about their own privilege, tend to leave, so that those who remain are particularly entitled and/or deluded.

Still, that nagging doubt helps explain the backlash. They project in order to protect themselves. Their self-defense gets ever louder.

Last week Tom Perkins doubled down on his plutocrat paranoia at the Commonwealth Club, insisting the more money you have, the more votes you should get. He later “clarified” his remarks by saying he was only warning about the dangers of the 50 percent of the country that doesn’t pay taxes nonetheless having the right to vote. It was an uglier version of Mitt Romney’s 47 percent remark. Neither Romney nor Perkins nor their many defenders seem to realize that the people who pay no taxes are either retirees, or low-wage workers who are paid so little they’re not taxed.

These men who rigged the rules of the game to make themselves obscenely wealthy are trying to convince themselves, and us, that they’re entitled to those rewards. If only there were a genuine political movement triggering their paranoia.  Instead, it’s preemptive, a product of their buried guilt and practiced entitlement.

 

By: Joan Walsh, Editor at Large, Salon, February 18, 2014

February 19, 2014 Posted by | Economic Inequality, Income Gap, Plutocrats | , , , , , , | Leave a comment

“No, We Don’t Dig It”: What We Still Don’t Know About Mitt Romney’s Taxes

With the documents Mitt Romney released recently, we know a bit more about his taxes.

We know, for instance, that Romney paid a rate of 14.1 percent on $13.7 million in income on his 2011 tax return, which he achieved by purposely overpaying. Though he was entitled to deduct $4 million in charitable contributions, Romney deducted only $2.25 million to keep his tax rate above 13 percent.

(Romney, it has been pointed out, could file an amended return to claim the full deduction after the election. We’ve contacted the Romney campaign, and Michele Davis, a spokeswoman, assured us he would not do so.)

We know, according to a letter from his accountants at PricewaterhouseCoopers, that Romney has paid state and federal income taxes each year since at least 1990, which would seem to disprove Senate Majority Leader Harry Reid’s claim in July that Romney had not paid any taxes for a decade.

And we know that Romney’s tax rate since 1990 never dipped below 13.66 percent, according to his accountants. Romney paid an average effective tax rate between 1990 and 2009 of 20.2 percent.

But there’s still a lot we don’t know. “I think most of the major questions we had before [last Friday] are still out there,” said Brian Galle, a tax law professor at Boston College. Here are a few:

How much did Romney make before 2010?

While Romney has disclosed his average effective tax rate for the last two decades, he hasn’t said how much he earned in those years or how much — the dollar amount — he paid in taxes.

That’s an important distinction, said Daniel Shaviro, a tax law professor at New York University. Various tax-planning strategies may have enabled Romney to reduce his adjusted gross income in some years.

In 2008, for instance, investors everywhere lost money when the stock market tanked. Romney may have carried those losses forward, Shaviro said, and used them to reduce his adjusted gross income in 2009. While we know Romney paid at least 13.66 percent of the income he recorded on his taxes in a given year, we don’t know what percentage he paid of the money actually took home that year.

Why is Romney’s IRA worth so much?

Much of Romney’s wealth sits in his IRA, which is worth as much as $101.6 million. It’s a remarkable number, in part because Romney would have been able to contribute a maximum of $30,000 a year to his IRA while he was at Bain, from 1984 to 1999.

Galle, the Boston College tax law professor, said the most likely explanation for the outsized IRA is that Romney put in shares in Bain investments that swelled in value. According to the Wall Street Journal, Bain allowed employees to buy a special class of shares in the firm’s investments. The shares didn’t cost very much, but they could be extremely lucrative. In one deal, the Journal reported, “some Bain employees saw a 583-fold increase” in the value of their shares — an astronomical return. Because the shares were in IRAs, the profits could be plowed into new Bain deals without subtracting taxes.

Romney also may have beefed up his IRA by contributing “carried interest” — a share of the profits in funds managed by Bain. As Reuters reported earlier this year, any potential carried interest would “not be disclosed in his personal financial summary or on a federal income tax return.” In other words, even if Romney released all his tax returns, we still might not know exactly how he accumulated his huge IRA.

What about Romney’s investments offshore?

We know many of Romney’s IRA investments are based in foreign countries but it’s hard to know how much. He valued one account in the Cayman Islands at anywhere between $5 million and $25 million.

One thing we do know is that Romney pays a far lower tax rate overseas than he does here. According to Quartz, Romney paid only 2.4 percent in foreign taxes in 2011 on the $3.5 million he earned abroad.

We also know where Romney’s current overseas investments are held —Bermuda, the Cayman Islands, Switzerland, Luxembourg — and many of the firms he has invested in, including a state-owned Chinese oil company and a Chinese bank that Romney’s family trusts sold their stake in last year. But we don’t have a lot of other important documentation, including forms would show whether Romney had, as the New York Times has reported, “over the years declared all of his foreign income to the IRS in a timely manner.”

The Wall Street Journal has reported that Romney’s offshore IRA investments likely helped him avoid a little-known tax called the unrelated business income tax. The tax, “meant to discourage tax-exempt entities such as an IRA or college endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it,” could have hit Romney at up to 35 percent.

The Romney campaign seems unlikely to release any more information about his finances, but that hasn’t kept reporters from digging it up. Bloomberg, for instance, analyzed securities filings to report last Thursday that Romney has set up a type of trust known as an “I Dig It” trust — a legal way for Romney to avoid estate and gift taxes and pass some of his fortune onto future generations.

 

By: Theodoric Meyer, Propublica, October 1, 2012

October 2, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

“Delusional Supporters”: Mitt Romney Has Almost Certainly Not “Already Paid Taxes On His Ordinary Income”

You can’t write about tax rates these days without getting shelled by those who feel their favorite Presidential candidate is being attacked by whatever you say.

That’s too bad, because it hinders the ability to have a reasoned discussion about taxes, which is a discussion this country desperately needs to have.

(Almost no non-partisan economist thinks our budget deficit can be solved by cutting spending alone. Taxes will almost certainly eventually have to go up. The question is by how much and on who and when. And that’s a debate we need to have in as cool-headed a way as possible.)

Anyway, anytime one points out that Mitt Romney pays a very low tax rate for a citizen who makes as much money has he does, one quickly hears from Romney supporters who say, effectively, the following:

You idiot. Don’t you understand the difference between taxes on “ordinary income” and taxes on “capital gains”? Mitt Romney already paid taxes on his ordinary income–at normal ordinary income rates! Now you want to tax him twice–by making him pay the same taxes on his capital gains!!!

(Some Mitt Romney supporters are much more polite when making this argument, which is much appreciated.)

To answer the question, yes, I do understand the difference between taxes on ordinary income and taxes on capital gains. And I understand the rationale for having the two tax rates be different (to provide an incentive for investors to risk their capital and thus help build businesses that employ people). And I actually agree with that rationale. I don’t think we can afford to have the difference between the two tax rates be as big as it is, but I agree with the rationale.

But here’s the thing…

Romney’s supporters are almost certainly wrong when they assert that Romney “already paid taxes on his ordinary income” and that now he’s just risking his “capital.”

This is because Mitt Romney has almost certainly taken advantage of one of the most outrageous tax loopholes in our entire tax code: The “carried interest” tax exemption.

This loophole allows money managers to structure the performance fees they are paid as “capital gains” instead of as ordinary income.

The loophole therefore allows money managers to avoid paying ordinary income taxes on their performance fees and then make much bigger bets than they would be able to make if they actually had to pay taxes on their earnings. When the money managers use very sophisticated tax shelters, it also allows them to defer paying taxes for years (if not decades)–and then only pay low long-term capital gains rates instead of ordinary income rates.

Although we don’t know for certain that that’s what Mitt Romney has done (because he won’t release his tax returns), it seems highly likely that this is what he has done. And, in fact, the obvious unfairness of this tax loophole seems like one big reason he won’t release his returns.

To be clear:

Taking advantage of the “carried interest” tax loophole is not illegal or wrong. Romney has done what any smart tax-minimizing person in his position would have done.

But the loophole itself is outrageous.

And the existence of the loophole means that Mitt Romney has almost certainly not “already paid taxes on his ordinary income.”

Rather, Mitt Romney has probably figured out ways to make sure that many of the fees he was paid for managing clients’ money at Bain were directed into future Bain investments before he paid taxes on them. These Bain investment then presumably did extraordinarily well, and Romney’s pre-tax ordinary income compounded tax free. And now, presumably, Romney is paying himself “dividends” or “long-term capital gains distributions” out of these Bain funds, which means that not only his original fee income but his pre-tax investment gains are being taxed at vastly lower long-term capital gains tax rates.

If Mitt Romney had actually paid ordinary income taxes on his fee income and then bet his after-tax income on future Bain investments, those who support today’s low rates on long-term capital gains would be justified in saying this is perfectly defensible, fair, and acceptable.

But Romney almost certainly didn’t.

Rather, Romney almost certainly took advantage of an outrageous tax loophole to take home tens or hundreds of millions more dollars than he would have if he had paid ordinary income tax rates.

So the Mitt Romney supporters who suggest that he paid these rates, unfortunately, appear to be delusional.

 

By: Henry Blodgett, Business Insider, August 17, 2012

August 27, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

“Mitt Romney’s Entitlement Society”: Winning For Losing, Money That Flow’s To The Wealthy

Mitt Romney, who secured the number of delegates needed for the Republican nomination last week, said early on that this election is a choice between President Barack Obama’s “entitlement society” in which people are dependent on government benefits, and his “opportunity society” where business is free to flourish.

But if you take Romney’s own life as representing a governing philosophy, he has the dichotomy backward. Romney is the one who has taken advantage of government entitlements — the ones that flow to the wealthy. And his interest in opportunity lies with rich investors who exploit government rules, often to the detriment of Main Street. Romney’s use of the federal bankruptcy courts to extinguish debts owed to suppliers, shops and service providers is a perfect example — more on that later.

For starters, let’s tick off some of Romney’s favorite government entitlements:

• Special tax rules allow him to pay federal income taxes of just 15 percent on his millions in “carried interest” profits, capital gains and dividends. The rest of us pay a rate of up to 35 percent on income from work.

• Bain Capital, the private equity firm Romney founded and ran from 1984 to 1999, only succeeded due to a major tax loophole. Bain was able to deduct the interest on the massive loans taken out to finance the purchase of its takeover targets — loans secured with the companies’ own assets. In 2008, Germany put limits on this kind of tax shenanigans, but don’t expect anything that enlightened to happen here.

• Romney’s firm also enjoyed government largess in the form of job creation tax breaks. Just the year before Dade Behring, a Bain company, closed its operations in Puerto Rico in early 1998, with nearly 300 workers losing their jobs, the company received federal tax break of $3 million for promoting jobs there and a $4.1 million tax exemption from Puerto Rico.

But there is no big government entitlement as magical or beloved by Romney and Bain than the get-out-of-debt-free card bestowed by federal bankruptcy court.

Dade Behring went bankrupt, leaving Main Street creditors empty-handed, but not before Romney’s firm took $242 million out of it. In fact, of Bain’s 10 top business investments that made up 70 percent of the $2.5 billion Bain made for investors, four eventually went bankrupt, according to the Wall Street Journal.

That’s called winning for losing, a game perfected by top 1 percenters.

For a closer look at one destructive bankruptcy, read “Romney Economics: Cheat Main Street,” a column by Leo Gerard in the Huffington Post (http://tinyurl.com/dylorbl).

Gerard documents the way Bain left Main Street businesses licking their financial wounds as it legally absconded with millions in management fees, dividends and other distributions. His featured example is American Pad and Paper Co. (Ampad) that Bain bought from Mead Corp. in 1992. Bain remained the company’s largest single shareholder through 1999, and three Bain executives sat on its board. In 2000, the company filed for bankruptcy, leaving debts to suppliers of more than $180 million. Even so, Bain came out smelling like money. It had invested $5 million and took out more than $100 million.

Eleven years after Ampad filed for bankruptcy, as Gerard points out, the company’s nearly 1,300 unsecured creditors finally got a pittance of what was owed: Green Bay Packaging Inc. was owed $75,500 and received $137; Lakeway Container Inc. was owed $47,100 and received $89; American Coffee Break Service was owed $1,300 and was paid $2.56. The bankruptcy trustee’s final report lists page after page of Main Street businesses receiving less than a penny on the dollar. Had that $100 million flowed to Ampad’s suppliers rather than Romney and Bain investors, it would have covered more than half the debts.

Romney desperately wants to convince the public that Bain operated in the best interests of Main Street and that he didn’t get fabulously rich under government-rigged rules. But the man exemplifies the special tax breaks and legal shields from creditors that the wealthy see as their right.

That’s Romney’s “entitlement society.”

By: Robyn E. Blumner, Columnist, Tampa Bay Times, June 3, 2012

June 4, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

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