Me, a Liberal?

As conservative as I often seem, there are still some progressive ideas that attract my sympathies. In particular, I do believe income inequality is a problem that needs correcting before it forces the underclass to the streets. So the question becomes — how do we fix things within the context of a constitutional republic? Here are a few suggestions:

- Trump promised when he ran to eliminate the “carried interest” tax break for hedge fund managers. So far, nada. It’s long since time for him to keep this promise.

- The current tax law allows corporations, like Amazon, sometimes to pay zero taxes. I would be in favor of having an Alternative Minimum Tax rate for corporations ... say 5%.

- Corporations use stock options to inflate senior executives’ take-home into the tens of million dollars. This is a major reason for the huge income gap between these executives and their lowest-paid employees. Those stock options profits are often taxed at a lower capital-gains rate. As I have previously proposed, I believe that, instead, they should be considered always as ordinary income.

- There are other ways that corporations, colleges and other non-profits have to reward their higher-ups with non-taxable benefits ... non-interest-paying loans (like for Harvard’s to Elizabeth Warren), loan forgiveness, low-rent housing, etc. These perks should always be recognized and taxed as ordinary income.

- There are many schemes that the wealthy use to avoid taxes ... like donating fine art, at ridiculously inflated prices, to museums. These deductions should be reduced out of the stratosphere with some meaningful constraints.

- There are literally hundreds of other tax-avoidance mechanisms used by the wealthy to reduce their tax burden. There needs to be a house-cleaning of these work-arounds to eliminate those that are outdated and no longer provide any social benefit.


Enough? Am I now in AOC’s fifth column?


Afterthought: Actually, this fine-art donation tax avoidance might have been changed in the last tax code revision where charitable donations may no longer be deductible ... I’ll have to look into this further.

Unmasking

No, this posting is not about the deep state's duplicitous revealing of hundreds of Trump campaign staffer's names in NSA intercepts. It's about Congress' hiding their votes for unpopular things like the "carried interest" tax treatment.

There needs to be an unmasking of all those pretenders in Congress regarding their position on this special tax rate for hedge fund managers. Now that the Republican tax reform package has been passed, there is now an opportunity for some brave lawmaker to introduce a law specifically rescinding this 15% carried-interest tax treatment. Nothing else included ... just this one item ... no other provisions to hide behind or confuse things. Wouldn't it be great to see exactly how all in Congress, Democrat and Republican, feel about this specific tax give-away?

I think we might see some surprises as to who votes yea and nay. Only one problem, however ...

It will never happen ... for the obvious reason that no one there wants such a political unmasking.

In a Nutshell

CNBC has done a good job summarizing all the winners and losers in the GOP tax package which is expected to be enacted on Tuesday. Even though "carried interest" has not been eliminated, its holding period has been increased from one to three years to qualify -- small victory.

This reform was sausage making at its best ...

Anyhow, spend the halftime of the NFL game you are not going to watch today studying this information packed chart ... CNBC Synopsis. I think the stock market is telling us that this will not just be good for US companies ... but for our economy in general. It certainly will have consequences for the 2018 midterm elections ... possibly even more so than sexual harassment charges.

Headlines

All from Internet news sites. Guess which are from The Daily Caller?

Democrats euphoric after Tuesday election romp

Trump's Pentagon nominee says it's 'insane' civilians can buy assault rifles

VA: Gillespie loses by 8 points (Trump only lost by 6) ...

Kurdish leader: Kurds 'revisiting' ties to U.S. after Trump refuses support

Maine voters approve expanding Medicaid under Obamacare

Texas gunman was in mental hospital in 2012 -- until he escaped

Fog grounds Trump's surprise DMZ visit ...

Experts: Chinese investments flowing into Brazil 'like a tsunami'

Obamacare sign ups surge despite Trump cuts

US is running out of ISIS terrorists to bomb

Menendez juror asks judge: What is a Senator?

House tax bill to impose 2-year holding period for 'carried interest'

The Voice of the People

Here are just a few recent news items that struck me ... as showing a pattern of the 1% solidly backing Hellary Clinton for president.

- Hedge fund managers give $48.5 million to Clinton's campaign, $19 thousand to Trump's ... see: Wall Street Journal Article.

- Michael Bloomberg speaks at Clinton convention, calls Trump a "dangerous demagogue" ... see: CNN Video.

- Billionaire Mark Cuban endorses Clinton, calls Trump a "jagoff" at Pittsburgh rally ... see: Washington Post Article.

- Warren Buffett at a recent Clinton fundraiser, "A monkey would have generated better returns than you [Trump]" ... see: CNBC Article.

Are we beginning to see a pattern here? The super-wealthy elites in America are clearly hoping that Hellary Clinton wins in November and continues the policies of Obummer ... and they are backing these desires with lots of money and rhetoric that is often as purple as Trump's. Why we wonder?

Perhaps because they have done quite well, thank you, during the crony capitalism, fire-hose government spending, open-borders to cheap labor, and [un]free-trade policies of the current administration and they are worried that Trump will throw sand on the tracks of their gravy train?

These 1%ers have suffered through the Occupy Wall Street protests ... they dodged a bullet when Bernie Sanders came up short in his bid for the Democrat nomination ... they have invested heavily in the Clinton brand of back scratching through generous speaking fees and "charitable donations" to the Clinton Foundation ... and they want and expect a generous return on this investment.

Has Hellary pledged to eliminate the carried interest generous tax treatment for hedge fund managers? No ... but Trump has. Even though Hellary has vowed to increase taxes for the wealthy, we all know that, without a fundamental overhaul of the tax law, the super wealthy using existing loopholes will still, like Warren Buffett, pay a smaller percentage of their income than their secretaries. Has Hellary pledged to reform the tax system? I haven't heard her say so. have you?

Perhaps, with all of this grease, Hellary will prevail and defeat the populist Trump in November ... but she will at her and the Washington elite's peril (and I include many Republicans, like Paul Ryan, in this mix). For the American people are beginning to understand the game that is being played in DC ... and there is a revolt brewing. Those in the 1% would be smarter in the long run if they listened to the voice of the people.

Afterward: Even the Koch brothers are implicated ... see: Breitbart Story.

Charm Offensive

I don’t know about you, but I am offended by President Obama’s “charm offensive.”  Yes, one can attract more bees with honey than one can with vinegar.  But the President has splashed around so much acetic acid during his last four years, that switching to Karo syrup just at the time when his media acolytes are beginning to waver seems rather disingenuous … see: Huffington Post Story

Offering candy to children to get them to toe the line often works.  But the Republicans in Congress are, hopefully, a little more sophisticated than turnip-truck ejectees.  I think that the current best Republican strategy is to wait for Obama’s budget proposal sometime in April (hopefully) and then pull out all the stops in educating the American public as to the debilitating ramifications of same.  Certainly, if the President’s 10-year fiscal outline is anything like Senator Patty Murray’s recent Democrat thigh-slapper (see: Pattycake), this should be an easy sell. Then, they might even get some minimal cooperation from main-stream media outlets.

If the Republicans need to throw the President and Democrats a bone in order to get any serious entitlement reform, then getting rid of the "carried interest" tax loophole would be my best candidate for a compromise.

Carried Interest

I, along with (seemingly) President Obama, have long been an opponent of the “carried interest” tax treatment on the earnings of hedge-fund managers (for my detailed argument, see: Fewer Happy Returns).  In fact, I believe that this has been one of the driving forces behind our President’s “fairness” obsession to raise taxes.  (Or maybe he is just using it as a convenient excuse?)  This January he already has gotten the capital gains rate increased from 15% to 20% … I suspect, among other things, in order to increase the taxes on carried interest … i.e., tuck it to hedge fund managers.  But, in the process, he is also screwing ordinary middle-class investors.

However, of late I have been curious about how this favorable tax treatment came into being.  I first went to Wikipedia (see: Wikipedia Entry ) where I did not find its genesis … but it does say that it has been an issue since the mid-2000s.  My suspicion is that this tax treatment was initiated within the IRS itself.  As per the Wikipedia entry, there apparently were some unsuccessful attempts by the Democrats to erase this rule in the 2008 to 2012 time frame.  Moreover, there was actually such a law passed in the Democrat-led House of Representatives in 2010 … see: Gibson Dunn Comments.  Curiously, it apparently died (as most things did) in the Harry Reid (D, Nevada) controlled (with an iron hand) Senate.  So, like many controversial issues, the Democrats have been able to have their cake and eat it too.

Clipping Hedge Funds

I criticize President Obama quite a lot.  So when I get a chance to agree with him, I feel to be out of step with myself.  However, his calling for hedge fund managers to pay taxes on their compensation ... as though it were ordinary income ... strikes me as quite rational (see: Huffington Post Story).  The reason that these barons of Wall Street ... such as Warren Buffet ... currently get away with paying 20% (just upped from 15%) on their hedge-fund compensation (which often can runs into the tens, if not hundreds of million dollars) is that it is treated as "carried interest" ... in other words, it is viewed for tax purposes by the IRS as though it were real interest on invested capital.  It most often isn't.  The definition of "carried interest" is:

"A share of any profits that the general partners of private equity and hedge funds receive as compensation, despite not contributing any initial funds. This method of compensation seeks to motivate the general partner (fund manager) to work toward improving the fund's performance."

Rush Limbaugh has also  zeroed in on "carried interest" as possibly being a problem. This could be because the recent raising of the taxes on capital gains from 15% to 20% may have been inspired by this tax loophole  That is, the rest of the country is now paying a penalty for this one taxing inconsistency.  Rush had in the past implied that this compensation represents a fair (interest) return on what these managers initially invested.  It most often isn't.  Or, if it is, is is not allocated according to what percentage their initial investment represents relative to the total hedge fund assets.  This, to me, is wrong ... and needs to be remedied.  The closing of this tax loophole is not going to balance the federal budget (bringing in just a few extra billion dollars), but this unfairness seems to be gnawing at Obama’s (and my) psyche … and should be fixed.   Then maybe we can drop the real capital gains tax rate back to 15%?  That would be fair.

So even though Obama seems to be biting the hand (Wall Street) that has fed him royally, I will support him on this one issue.  But I won't make it a habit.

Dope

It’s fortuitous that many states have now legalized marijuana because our nation is now on a drug jag that is bound to destroy our psyche and our future.  Last night the House passed the Senate’s “solution” to our fiscal-cliff crisis which adds $3.9 trillion more to our already-crushing national debt of $16.4 trillion (see: The Hill Story) … and in the process gives additional tax breaks to Hollywood and NASCAR … and extends unemployment insurance for another 12 months.  

Yes, President Obama looks like a hero to the takers in this country in that he tucked it to the millionaires and billionaires (and the Republicans) … but, in truth, he really punished very few people (except the Republican party) since this “compromise” is allowing the carried-interest tax break to survive for hedge-fund managers … and Warren Buffet.

But since, to the majority of Americans, perception is reality, the stock market is poised to soar … and our former dope-smoking jamoke, Barack Obama, is soaring back to Hawaii to finish his vacation on a high.  I think maybe I might just be tempted to take a toke myself … since this could be the only way I can alleviate the crushing angst I now feel for our country’s future.

Paying the Piper

The current administration's Internal Revenue Service gives with one hand and takes away with the other.  I have just been working on my 2011 income taxes and am surprised to find two (to me) significant changes (i.e., no Schedule M and a decreased lifetime limit on energy tax credits) that increase my taxes by well over a thousand dollars.  I find it interesting that these changes have been slipped into the tax code with little fanfare while, at the same time, I hear the political hoopla about the continuation of reduced payroll taxes.  The difference still seems a net gain for The Barry's tax collectors.  To see a detailed list of this year's changes go to: Tax Code Changes.

Understand, I am not here objecting to paying more in taxes, but, not being in the 1%, I am wondering what other changes are still in the works (hopefully, removal of the carried interest tax rate.)  And I have to speculate what might be the effect on total tax receipts given our sluggish level of economic activity.  If aggregate government tax receipts increase substantially this year (as I expect) and if our deficit still lingers in the stratosphere, then I am beginning to see the outlines of regressive taxing on the part of those who tout progressive tax reform ... as well as continued fire-hose-like government spending.  Given the incessant shifting of the tax-code, no wonder U.S. businesses are sitting on their hands.  Clarity and direction would surely improve things.

Fewer Happy Returns

Mitt Romney was asked again in the South Carolina debate Monday night if and when he will release his income tax returns.  He indicated that, sometime in April after he has filed his 2011 taxes, he might consider such a move.  The question then presents itself -- why not also disclose his prior years?

My guess is that Mitt had been using the "carried interest" section of the tax code in years past (the same methodology that Warren Buffet uses to pay a lower tax rate ... around 15% ... than his secretary), and he plans quietly to abandon this practice in 2011.  He also hopes that showing his 2011 returns without this gimmick will satisfy for his critics.  Guess again Mitt!  If you have used this loophole in the past, it surely will come out (Obama's people do have access to your tax records) ... and probably just before the election ... as an October surprise.

So my suggestion to you Mitt is ... reveal everything now and put it behind you.  Say that, even though you (and Warren Buffet) have used this tax loophole, you now believe it to be improper and you will work for its repeal.  And, to show your sincerity, you will not use it for your 2011 tax filings, and, in the future, you plan on paying the normal statutory rate, not the carried interest rate (and maybe even urge Warren Buffet to do the same).

It might hurt your image for a while, but I don't think it will cost you the election.

Afterthought: Mitt Romney was on this AM's news saying (late last night) that his effective tax rate was close to 15% since most of his income has been from capital gains.  This suggests to me that he has indeed been using the "carried interest" methodology in his tax filings.  Now, as a result, our generally financially-illiterate media is starting the drumbeat against our lower 15% capital-gains rate.  If the fact that private equity firms and hedge funds have been, in my opinion, abusing "carried interest" to lower their taxes ... causes our equally-naive Congress to abolish a lower capital gains rate, then this would be a great tragedy.  They then would be doing what is best described as "pissing in the soup."  Please Congress, just eliminate the carried-interest tax loophole.

Ananomous posted a comment that appears to freeze things on this blog and, although I don't concur with it, I will post it here:

Nicholas Kristof writing in NYT recently: "President Obama is pushing to close this loophole. 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."

My comment in reply is:

Kristof worded this salvo very cleverly (I think it's called weasel worded) ... implying that the Republicans are great defenders of "measures such as this one." I strongly suspect it was mainly other things that they had objected to.  But still, I hope the Republicans do realize the political folly in defending "carried interest" tax treatments.

DEN posted the following comment (that also freezes things):

I am not against a 15% tax on investment income (i.e.,dividends). But I do object to the Fund Managers' characterization of their compensation for work as "investment" income which avoids paying the payroll taxes for SS and Medicare.