Jul 07 2011

Closing The Tax Loop Hole For Gamblers

(10 am. – promoted by ek hornbeck)

The only people who are against taxing the rich and closing the tax loopholes are those whose pockets they line. The Republicans and blue dog Democrats are more concerned about protecting their wealthy donors than the people they represent. It is a blatant lie that the majority of Americans are opposed to tax increases for those making over $250,000 and closing tax loop holes for the Wall St. gamblers who help to keep the price of commodities, like oil, inflated.

Closing The Hedge Fund Manager Tax Loophole Would Raise $4 Billion Annually From The 25 Richest Managers

One of the tax breaks upon which President Obama has focused is a provision that allows hedge fund managers – who make billions annually – to receive a substantial tax break. This particular tax break, known as the carried-interest loophole, allows hedge fund managers to treat the money they receive from investors as capital gains, subject to a 15 percent tax rate. Though this money is a paycheck received for services, just like a movie star receiving a bonus if her movie does well, it’s treated as investment income.

Since hedge fund managers are some of the richest people in the country, this tax break actually causes a significant loss of revenue. In fact, according to calculation by RJ Eskow, closing this loophole would raise more than $4 billion per year just from the 25 richest hedge fund managers:

   The top 25 hedge fund managers in the United States collectively earned $22 billion last year, and yet they have their own cushy set of tax rules. If they operated under the same rules that apply to other people – police officers, for example, or teachers – the country could cut its national deficit by as much as $44 billion in the next ten years.

Sen. Carl Levin (D-MI): Senate Floor Speech on Carried Interest and Offshore Tax Havens

Now just one example of the kind of tax breaks and tax loopholes we Democrats seek to change is the unconscionable tax break given to hedge-fund managers. Hedge fund managers generally make their money by charging their clients two fees.  First, the manager receives a management fee, typically equal to two percent of the assets invested.  Second, the manager typically receives 20 percent of the income from those investments above a certain level. This 20 percent share of the investment returns from hedge funds is known as carried interest.  Under current law, most hedge fund managers claim that this carried interest qualifies as a long-term capital gain, currently subject to a maximum tax rate of 15 percent, rather than being taxed as ordinary income, currently subject to a maximum tax rate of 35 percent.

But a moment’s analysis shows that this money is ordinary income by any fair definition and should be treated that way. The 20 percent fee is not capital gains, because it applies not to capital that the hedge-fund manager has invested, but to the payment he receives for investing capital that other people provide.  Pretending that the 20 percent fee is capital gains when in fact it is payment for a service is an Alice-in-Wonderland argument that elevates fiction over fact.

Now we Democrats seek to end this fiction. We are ready to call carried interest what it is – ordinary taxable income. Recognizing carried interest for what it is would increase tax fairness for working Americans who pay their share, and their fair share of taxes. They have the right to expect the wealthy to do the same. And it would reduce the deficit if we did this by an estimated $21 billion over the next 10 years.

And then we have Ben Nelson (D?-NE), whose primary concern is Ben Nelson:

David Dayen: Ben Nelson Wants Spending Cuts Primary in Debt Limit Deal

One of the reasons why Democrats are going to lose this debt limit fight in a big way is that they have no consistent position across their membership. Republicans know exactly what they want – no taxes – and every one of their members agrees with that assessment. By contrast, Democrats have people like Ben Nelson looking out for themselves:

   Sen. Ben Nelson, one of the more conservative Democrats in the chamber, has said that a deficit-reduction deal should focus on reducing spending, and not finding new revenues.

   The Nebraska Democrat also said in a Wednesday statement that he thought a significant plan to roll back deficits would not necessarily have to take aim at entitlement programs.

   “I want to see a broad and serious package of spending cuts,” Nelson said. “And we can cut trillions of dollars of spending without attacking Medicare and Social Security. But if we start with plans to raise taxes, pretty soon spending cuts will fall by the wayside.”

This is just ridiculous if you look at what’s actually being proposed. The Medicare, Medicaid and Social Security cuts that have been put on the table dwarf the revenue increases through closure of tax loopholes by a 2:1 margin. And that’s without even taking into account the agreed-to cuts in mandatory and discretionary spending. You’re looking at a 6-1, minimum, ratio. But if we don’t give a tax break for corporate jet owners and force hedge fund managers to report their income as income and not capital gains, “spending cuts will fall by the wayside.” This is nonsense.

How many of the 25 top hedge fund managers live in Nebraska? How many Lear jets do Nebraskans own? How many Nebraskans rely on Medicare, Medicaid and Social Security Benefits? I don’t see any reason for Nebraskans to send this corporate puppet back to the Senate for another 6 years.

The best analogy of this entire stand off came from Miles Mogulescu:

Republicans and Obama are Like Thelma and Louise Racing Toward the Cliff

The Republicans are a bit like Thelma, her foot flooring the gas pedal as the global economy hurtles towards the precipice of the Grand Canyon, while Obama is a bit like Louise, her passivity effectively giving Thelma permission to drive off the cliff. Or maybe the movie is Rebel Without a Cause with the Republicans’ James Dean engaging in a miscalculated game of chicken and Obama’s Sal Mineo being killed by police gunfire after all the bullets have been removed from his own gun. Or maybe it’s The Guns of August as the Germans and Western allies inadvertently, but inexorably, hurtle towards World War in the summer of 1914.

Pick your metaphor, but any way you look at it, America’s political leaders are flirting with disaster, risking the first debt default in American history which would likely drag the American — indeed the global — economy into a new recession or even a depression and could dwarf the economic crisis of 2008.

The Republicans are acting as the aggressors, but Obama is acting as the enabler.

Damn those torpedoes. Full speed ahead to the cliff.

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