In Cantor, Hedge Funds And Private Equity Firms Have Voice At Debt Ceiling Negotiations
As the debt-ceiling talks tick down to the Aug. 2 deadline, leading the opposition to any deal that includes higher taxes is the new tribune of rank-and-file House Republicans: Majority Leader Eric Cantor of Virginia.
Cantor’s pivotal role marks a rapid rise for the 48-year-old from the Richmond suburbs. It also represents a major coup for sectors of the investment community that Cantor has been striving to assist for years — on the same tax issues that have been at stake this month. And so far, he has prevailed on those issues.
Among the White House’s top demands for new revenue are changes in the tax code affecting hedge funds, private equity firms and real estate partnerships, which would raise an estimated $20 billion over 10 years.
For the past four years, Cantor has taken the lead in the House on fighting the same changes. He also has been one of the top recipients of contributions from those industries — last year, his two fundraising committees took in nearly $2 million from securities and investment firms and real estate companies, more than double the figure for Boehner (R-Ohio).
The hedge fund and private equity proposals were at the center of Cantor’s decision to exit talks with Vice President Biden this month. Since then, the prospect for any immediate tax increases has declined, with the focus turning to spending cuts and broader tax reform postponed.
This dismays Democrats, in part because Cantor has cast his defense of the investment tax treatment as part of the broader tea party-fueled anti-tax orthodoxy. To Democrats, Cantor embodies the convergence of tea party and business interests, which is often obscured by the movement’s anti-Wall Street rhetoric.
“This [anti-tax stance] isn’t all coming up from the grass roots,” said Rep. Chris Van Hollen (D-Md.). “This goes to some longtime cozy relationships between House Republicans and hedge fund managers in the financial sector.”
A spokesman for Cantor noted that he always has opposed raising the investment taxes in question but declined to comment further.
Cantor has said repeatedly that Obama and other Democrats are exaggerating the value of closing tax loopholes for financiers. Although Cantor opposes closing them to raise revenue, he says he is open to doing so as part of broader tax reform that lowers overall rates.
“So I know it makes for good politics to throw the shiny ball out there . . . that somehow Republicans are wed to that kind of policy to sustain these preferences, when all along, in our budget and in our plan, we have said we’re for tax reform, we have said we’re for bringing down rates on everybody,” he said on the House floor last week.
Jennifer Thompson, a political science professor at Virginia Commonwealth University and former Republican campaign operative, said Cantor’s longtime opposition to the investment tax provisions is a sincere reflection of his conservatively inclined district.
“Eric Cantor is a Virginian and you can’t separate too much from that fact,” she said. “His constituents are very much aligned with the no taxes and being back in the black and that’s what Eric Cantor represents.”
Lawmakers from both parties have cultivated the investment community, but Cantor, whose wife is a former Goldman Sachs vice president, has had particularly strong connections. In 2006, his campaign committee and his leadership PAC, established to support other Republicans, collected $682,500 from securities and investment and real estate firms, far more than any other Republican on the Ways and Means Committee and nearly double the take of then-Chairman Charles B. Rangel (D-N.Y.).
Cantor sprang into action in 2007, when Democrats proposed the two major tax code changes that have been at the center of the debt talks. He formed the Coalition for the Freedom of American Investors and Retirees and invited several dozen industry groups to the opening meeting.
One of the changes revolves around “carried interest” — the pay managers receive for gains they produce for investors — which is taxed at the long-term capital gains rate of 15 percent. Many tax experts argue that it should be taxed at the 35 percent rate for ordinary income because it is the managers’ compensation for services performed, not the result of their own capital investment.
Another proposal would tax profits from the sale of hedge funds as ordinary income.
Since 2007, Cantor has railed against the proposals, saying that the carried interest proposal would “raise taxes on innovation and opportunity in America” and harm “mom and pop” businesses.
Democrats dismiss that argument. “There is virtually no evidence that having these people pay ordinary income would inhibit business development,” said Rep. Sander M. Levin (Mich.).
The proposals passed the House, which was then under Democratic control, but fell short of a filibuster-proof majority in the Senate last year.
Cantor’s support from the industries soared. Contributions to his two campaign committees from the real estate and securities and investment sectors jumped to $916,307 in 2008 and doubled to $1.85 million in 2010, according to the Center for Responsive Politics.
The top 10 contributors to Cantor’s two committees in 2010 included three investment firms: employees at SAC Capitol Advisers, the hedge fund founded by Steven Cohen, gave $64,964; those at the private equity firm KKR gave $52,600; and those at Elliott Management, the hedge fund founded by Paul Singer, gave $44,198. The Blackstone Group, the hedge fund run by Steve Schwarzman, and its employees gave $26,100.
The main private equity and hedge fund trade groups have ramped up their lobbying amid the debt talks, spending $4.2 million this year.
By: Alec MacGillis, The Washington Post, July 25, 2011
GOP’s Debt Ceiling Fight Is About Bringing Down Obama
Impeach him.
Not the president. Barack Obama is holding a huge global and domestic crisis in his hand. To use a Washington metaphor, he’s dangerously close to being left “holding the bag” on the Treasury debt ceiling limit. He keeps talking sweet reason about the art of compromise to Republicans in Congress—not a language they speak. Obama played golf with the House Speaker John Boehner, a Republican who drones on about “small business” every chance he gets. Obama is not getting traction or making friends with Boehner because he does not grasp the conversation about the debt limit is not about the debt limit. It’s about taking his presidency down—this week—even if it hurts the United States of America, which it will. A small price to pay for this tea-drinking crowd of 87 GOP House freshmen which turned the chamber upside down six months ago.
“This is no way to run the greatest country on earth,” Obama declared in a belated speech, sounding a call to arms around the country, last night. That in itself says so much—he’s right, but he’s the man who’s elected by the people—not John Boehner who was elected by a small-town slice of Ohio—to run the country! Everything was calculated to leave Obama in the lurch—by Boehner, House Majority Leader Eric Cantor of the old Confederate capital, Richmond, Va. and at least one other mastermind. The conspiracy has succeeded flawlessly so far. They separated Obama from his own party in Congress; in his dealings with only Republicans he went way beyond Bill Clinton’s “triangulation” strategy. Obama made allies feel like they were shut out of the deal-making room when he offered concessions that cut at the heart of the Democratic Party‘s proud history on social programs dating to the New Deal.
The GOP—and I mean the George W. Bush years and the current crop of Senate Republicans, too—has a new deal for you, too. It’s called the New Steal. It goes like this: we’ll take all the peace and prosperity of the Clinton tax code years up until 2000 and then squander it on a couple unwinnable wars of choice—and by the way, make rich people pay less into the Treasury than they did during those golden years. They might start one of those illusory “small businesses.”
The reason President Clinton was acquitted at his impeachment trial in the Senate for a fling with Monica Lewinsky was because he built bonds of loyalty, teamwork and camaraderie with Democrats in both houses of Congress. Not one of them came forward on the floor to speak against him, except pious Sen. Joe Lieberman, who suggested a censure. He was utterly alone in his opportunistic little ploy. Clinton’s true friends all stood by him in the Senate—because he was their president.
Obama, a bit of a loner, needs more bosom buddies among lawmakers. In a crisis, you find out who your friends are. The one who could have steered him straight, sailing into the wind, was the late great senator, Edward M. Kennedy. When Kennedy got his Irish up and roared on the floor, he scared the forest. Obama does not scare the Republican jungle.
Let’s impeach Rush Limbaugh as the master of public dis-coarse. He’s the real reason we have so many angry white men in office who are plotting against the president. He’s writing the back-story of this debt drama, consulting closely with House Republican leaders step by step. I believe it even if I can’t see it because he did the same thing in 1994, in cahoots with Newt Gingrich, who recruited a new House Republican freshman class to take over the House. Yes, I saw Rush with my own eyes getting all the glory as class mascot at a fancy dinner at Camden Yards in Baltimore for the new Republican victors that enabled Gingrich to become speaker. The government shutdowns and showdowns against President Clinton resulted—remember?
By: Jamie Stiehm, U. S. News and World Report, July 26, 2011
Boehner’s New Proposal Could Produce Greatest Increase In Poverty And Hardship Of Any Law In Modern U.S. History
House Speaker John Boehner’s new budget proposal would require deep cuts in the years immediately ahead in Social Security and Medicare benefits for current retirees, the repeal of health reform’s coverage expansions, or wholesale evisceration of basic assistance programs for vulnerable Americans.
The plan is, thus, tantamount to a form of “class warfare.” If enacted, it could well produce the greatest increase in poverty and hardship produced by any law in modern U.S. history.
This may sound hyperbolic, but it is not. The mathematics are inexorable.
The Boehner plan calls for large cuts in discretionary programs of $1.2 trillion over the next ten years, and it then requires additional cuts that are large enough to produce another $1.8 trillion in savings to be enacted by the end of the year as a condition for raising the debt ceiling again at that time.
The Boehner plan contains no tax increases. The entire $1.8 trillion would come from budget cuts.
Because the first round of cuts will hit discretionary programs hard — through austere discretionary caps that Congress will struggle to meet — discretionary cuts will largely or entirely be off the table when it comes to achieving the further $1.8 trillion in budget reductions.
As a result, virtually all of that $1.8 trillion would come from entitlement programs. They would have to be cut more than $1.5 trillion in order to produce sufficient interest savings to achieve $1.8 trillion in total savings.
To secure $1.5 trillion in entitlement savings over the next ten years would require draconian policy changes. Policymakers would essentially have three choices: 1) cut Social Security and Medicare benefits heavily for current retirees, something that all budget plans from both parties (including House Budget Committee Chairman Paul Ryan’s plan) have ruled out; 2) repeal the Affordable Care Act’s coverage expansions while retaining its measures that cut Medicare payments and raise tax revenues, even though Republicans seek to repeal many of those measures as well; or 3) eviscerate the safety net for low-income children, parents, senior citizens, and people with disabilities. There is no other plausible way to get $1.5 trillion in entitlement cuts in the next ten years.
The evidence for this conclusion is abundant.
The “Gang of Six” plan, with its very tough and controversial entitlement cuts, contains total entitlement reductions of $640 to $760 billion over the next ten years not counting Social Security, and $755 billion to $875 billion including Social Security. (That’s before netting out $300 billion in entitlement costs that the plan includes for a permanent fix to the scheduled cuts in Medicare physician payments that Congress regularly cancels; with these costs netted out, the Gang of Six entitlement savings come to $455 to $575 billion.)
The budget deal between President Obama and Speaker Boehner that fell apart last Friday, which included cuts in Social Security cost-of-living adjustments and Medicare benefits as well as an increase in the Medicare eligibility age, contained total entitlement cuts of $650 billion (under the last Obama offer) to $700 billion (under the last Boehner offer).
The Ryan budget that the House passed in April contained no savings in Social Security over the next ten years and $279 billion in Medicare cuts.
To be sure, the House-passed Ryan budget included much larger overall entitlement cuts over the next 10 years. But that was largely because it eviscerated the safety net and repealed health reform’s coverage expansions. The Ryan plan included cuts in Medicaid and health reform of a remarkable $2.2 trillion, from severely slashing Medicaid and killing health reform’s coverage expansions. The Ryan plan also included stunning cuts of $127 billion in the SNAP program (formerly known as food stamps) and $126 billion in Pell Grants and other student financial assistance.
That House Republicans would likely seek to reach the Boehner budget’s $1.8 trillion target in substantial part by cutting programs for the poorest and most vulnerable Americans is given strong credence by the “Cut, Cap, and Balance” bill that the House recently approved. That bill would establish global spending caps and enforce them with across-the-board budget cuts —exempting Medicare and Social Security from the across-the-board cuts while subjecting programs for the poor to the across-the-board axe.
This would turn a quarter century of bipartisan budget legislation on its head; starting with the 1985 Gramm-Rudman-Hollings law, all federal laws of the last 26 years that have set budget targets enforced by across-the-board cuts have exempted the core assistance programs for the poor from those cuts while including Medicare among programs subject to the cuts. This component of the “Cut, Cap, and Balance” bill strongly suggests that, especially in the face of an approaching election, House Republicans looking for entitlement cuts would heavily target means-tested programs for people of lesser means (and less political power).
In short, the Boehner plan would force policymakers to choose among cutting the incomes and health benefits of ordinary retirees, repealing the guts of health reform and leaving an estimated 34 million more Americans uninsured, and savaging the safety net for the poor. It would do so even as it shielded all tax breaks, including the many lucrative tax breaks for the wealthiest and most powerful individuals and corporations.
President Obama has said that, while we must reduce looming deficits, we must take a balanced approach. The Boehner proposal badly fails this test of basic decency. The President should veto the bill if it reaches his desk. Congress should find a fairer, more decent way to avoid a default.
By: Robert Greenstein, President, Center on Budget and Policy Priorities, July 25, 2011
No Limits To Hypocrisy: Boehner Claims To Be “Worried About The Country”
House Speaker John Boehner (R-Ohio), as expected, is now fully invested in a temporary debt-ceiling extension. He’ll accept $1 trillion in cuts — with no revenue — now, and then consider another extension next year after additional negotiations over taxes and entitlements.
Democrats want one debt-ceiling vote, seeing no need to put the country through this twice in less than a year. Take note of how Boehner responds to this.
Boehner suggested Sunday that by trying to put the next debt ceiling debate off for so long Obama was trying to gain political advantage.
“I know the president is worried about his next re-election, but, my God, shouldn’t we be worried about the country?” Boehner asked.
It’s entirely possible that the House Speaker really is this dumb. With this in mind, I’m trying to think about how to ask the questions in a way John Boehner can understand. How about this:
1. How would the country benefit from two votes on raising the debt ceiling, instead of one?
2. If Republicans are sincerely concerned about economic “uncertainty,” why tell investors, job creators, and international markets that default is a possibility early next year?
3. If getting one debt-ceiling revision through Congress is necessary but difficult, why make lawmakers go through this twice?
Hearing John Boehner claim the high road, claiming to be “worried about the country,” might be the most hilarious thing I’ve seen in a while. We are, after all, talking about a House Speaker who allowed his caucus to launch an insane hostage strategy, threatening to crash the economy on purpose, and then refused to compromise, even after President Obama handed him an overly-generous offer.
“My God, shouldn’t we be worried about the country”? What a good question, John. Why don’t you answer it?
By: Steve Benen, Contributing Writer, Washington Monthly Political Animal, July 24, 2011
Republican Paradox: The Party That Can’t Say Yes
For days, the White House has infuriated its Democratic allies in Congress by offering House Republicans more and more in exchange for a deal to raise the debt ceiling and prevent default. But it was never enough, and, on Friday evening, it became clear that it may never be enough. Speaker John Boehner again walked away from the “grand bargain” he had been negotiating with President Obama, leaving the country teetering on the brink of another economic collapse.
At the White House podium a few minutes later, the president radiated a righteous fury he rarely displays in public, finally placing the blame for this wholly unnecessary crisis squarely where it belongs: on Republicans who will do anything to upend his presidency and dismantle every social program they can find. “Can they say yes to anything?” he asked, noting the paradox of Republicans, who claim that financial responsibility and debt reduction are their biggest priorities, rejecting yet another deal that would have cut that debt by at least $3 trillion.
Mr. Obama, in fact, had already gone much too far in trying to make his deal palatable to House Republicans, offering to cut spending even further than the deficit plan proposed this week by the bipartisan “Gang of Six,” which includes some of the Senate’s most conservative members. The White House was willing to cut $1 trillion in domestic and defense spending and another $650 billion from Medicare, Medicaid and even Social Security.
Much of that savings would have come from raising the eligibility age for Medicare benefits and reducing the cost-of-living increases that elderly people depend on when receiving their health and pension benefits. It could have caused significant damage to some of the nation’s most vulnerable people.
The “bargain” would require that alongside these cuts, tax revenues would go up by $1.2 trillion, largely through a rewrite of the tax code to eliminate many deductions and loopholes. That’s substantially less in revenue than the $2 trillion in the “Gang of Six” plan. The problem is that while much of the cutting would start right away, most of the revenue increases would be put off, in part because a tax-code revision would take months, and in part to allow House Republicans to say they did not agree to any specific tax revenue increases.
Democratic lawmakers were rightly furious when they heard about these details this week, calling the plan wholly unbalanced. But, in the end, it was Mr. Boehner who torpedoed the talks. He said Friday evening that he and the president had come close to agreeing on $800 billion of the revenue increases (the equivalent of letting the upper-income Bush tax cuts expire as scheduled next year — not much of a heavy lift) but could not stomach another $400 billion the White House wanted to raise through ending tax loopholes and deductions.
So, on the eve of economic calamity, the Republicans killed an overly generous deal largely over a paltry $400 billion in deductions. Mr. Obama was willing to take considerable heat from his liberal critics over the deal, and the Republicans were not willing to do a thing to anger their Tea Party base. As the president forcefully said, there is no evidence that House Republicans are capable of making those tough decisions. If last-ditch talks beginning Saturday fail, they will have to take responsibility if the unimaginable — a government default — happens in 10 days and the checks stop going out.
By: The New York Times, Editorial, July 22, 2011
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