Loopholes and Billionaires

Usually I stick to big broad themes. Not today. Today’s post is more targeted, and this is personal. I know this stuff because I am a Registered Investment Advisor, and tax loopholes infuriate me. And in a few moments, you ought to be angry as well.

As we all know, Republicans refuse to talk about raising taxes on anyone. They are happy to cut programs for everyone – the poor, the middle class, college students – but don’t dare ask the wealthy to share the burden in any way. (Oh, wait – as John Stewart so brilliantly showed with a flurry of TV clips, Republicans are not allowed to call anyone “wealthy” any more. No, they must be called “job creators.” Ha! That’s another story for another time.

Outrage #1.

You probably don’t know about something called “carried interest.” As you can read in the linked articles, these loopholes allow some of the super-wealthiest Americans – hedge fund managers and others employed in the game of moving money around – to enjoy lower tax rates than you and I pay. As the New York Times reports:

“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.”

Got that? While you are paying up to 35% on the income you earn, these guys pay only 20%. I would be thrilled if one of my Republican friends can explain to me (and I’ll post it on my blog) how this helps America in our time of need.

I live in this world. I understand compensation for performance. This is a total tax scam. Period.

Outrage #2.

As bad as the carried interest loophole is, this might be even worse. It primarily affects day traders and speculators who buy and sell futures contracts.

Read this, and explain to me why this is fair to you and me…

“For years, futures contracts, which are essentially bets on the price of commodities, stock indexes and the like, have received a more favorable tax treatment than stocks. A trader who buys and sells an oil contract in less than a year — even in a matter of minutes — pays no more than a 23 percent tax on the profits.”

Again, you and I, and all my clients, must pay 35% for any profitable investment held less than 12 months.

America’s greatest investor sums it up nicely…

“There are so many ways to attack the logic of it,” Warren Buffett, the chairman of Berkshire Hathaway said in an interview …”It doesn’t make sense.”

While Democrats are not blameless in developing these loopholes, predominantly it has been Republicans who fight hard for these loopholes. (Yes, it looks like some loopholes may be closed in the current negotiations, but rest assured the GOP will push to reinstate them ASAP.)

So the biggest question is – why does anyone in the middle class support the politicians who vigorously support these policies?
Ken

As always, here are links to my source material:
Day Traders and Speculators
Carried Interest

The Auto Industry Bailout: A Profile of Political Courage

The post below, about the success of the auto industry bailout, was sent out 8/5/10.

Today we learned that Chrysler is paying off its loan years ahead of schedule.

http://abcnews.go.com/Business/wireStory?id=13676213

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Republicans love to make dire predictions about every economic proposal put forth by the Democrats. If you follow politics at all, you know that our president is a “socialist” whose policies are leading us down a path to totalitarian communistic hell. Except, of course, he’s not. When newly-elected President Obama had to make the intensely difficult decision about whether or not to bail out the rapidly sinking US auto industry, the GOP, with virtually one voice, shouted their favorite word, NO! This video was broadcast last week, on August 3, 2010. It reminds you, with video clips, of what the GOP was saying about a year and a half ago. Where are they now, when all three US auto companies are showing healthy profits, and tens of thousands (at least) of American jobs have been saved? Try to watch at least the first 7 minutes or so – up until Gov. Granholm comes on.

http://www.msnbc.msn.com/id/26315908/#38497026

Stick It to the Poor. Again.

Are you following the debate about how to fix the economy? For the average non-economist, trying to make sense of the arguments is futile. Both sides seem to have good arguments.That’s why a recent Op-Ed piece in the NY Times by David Stockman is so important. Stockman served as Ronald Reagan’s Budget Director for several years, and prior to that was a Republican Congressman.

Stockman took a look at the highly-touted plan offered by Republican Paul Ryan, Chairman of the House Budget Committee. Republicans, and much of the media, are making a hero out  of Rep. Ryan. He’s young, photogenic and people give him credit for being “courageous” because he is “willing” to discuss changes to entitlement programs, i.e., Social Security, Medicare, Medicaid and food stamps

But Stockman bluntly says that Ryan’s plan puts “the entire burden of entitlement reform on the poor.”

Got that? Our GOP friends, according to one their own, want to fix the deficit by making life harder for the people who can least afford it. And of course, he, like all good Republicans, refuses to even consider letting tax rates for the wealthy go back to where they were under Clinton, when we are all doing well.

Does that make you proud to be an American? Is that what you stand for? Hurt the poor and middle class, while asking nothing extra from millionaires and billionaires?

Where is the “shared sacrifice” that politicians ask for?

And actually, it’s not a matter of raising taxes on the wealthy – it’s simply letting the Bush tax cuts expire. Those cuts were meant to be temporary; they were put in place because Bill Clinton handed George W. Bush a large budget surplus, and Bush basically said the U.S. should give back the “excess” taxes that were collected.

On the same day as the Stockman article appeared, Nobel Prize winning economist Paul Krugman wrote that the Ryan/GOP plan calls “for tax cuts, with taxes on the wealthy falling to their lowest level since 1931.” Right. The US is desperate for income, yet Ryan says cut rates for the wealthiest even more!

Republicans claim, with a straight face, that we can’t raise taxes on millionaires because that would stifle job creation. WHAT A LOAD OF CRAP.  Business people – and I’m one – hire or fire based on what is best for our business. The idea that I would not hire another person for my firm merely because I had to pay slightly higher taxes is absurd beyond belief.

Sadly, few in the media ever challenge the GOP absurdity. We can only hope that the people will eventually see how the poor and middle class are getting screwed.

Below are links to the two articles.

http://www.nytimes.com/2011/04/24/opinion/24stockman.html?_r=1&scp=1&sq=stockman&st=cse

http://www.nytimes.com/2011/04/25/opinion/25krugman.html?scp=1&sq=krugman&st=Search

Teachers vs Wall Street

The latest target of Republicans

The hypocrisy of our Republican friends is mind boggling. They refuse increase taxes ever so slightly for millionaires (Democrats merely wanted to go back to the rates under Clinton) but they are happy to go after teachers – who should be paid more, not less!

As happens so often, Jon Stewart makes it all painfully clear.

I could literally stop this video every ten seconds or so and expand on what you just saw, but I’ll just say that if anything is not clear, ask me.

Crisis in Dairyland – For Richer and Poorer – Teachers and Wall Street

When will America’s teachers follow the lead of Wall Street and start making some sacrifices for the children?

http://www.thedailyshow.com/watch/thu-march-3-2011/crisis-in-the-dairyland—for-richer-and-poorer—teachers-and-wall-street

Rachel Maddow video: GOP statements vs. GOP policy

This is one of the most powerful “political” videos you are likely to see. It deals with the upcoming intense debates about fiscal responsibility, an issue that affects every part of  our society. If your blood isn’t roiled by the time you get to the end, check for a pulse.  I was angry at the stunning hypocrisy of the GOP, but angry too that the Democrats – and the press – allow the GOP to continually say one thing and do the complete opposite.

It’s long – around 14 minutes. And it begins with a silly skit (in which, inexplicably, the sound effects are different from what was heard on TV). But once Rachel sits down, she dramatically builds a case that smashes most Americans’ perceptions about which party does what. Her final point, a look at benefits for the unemployed, is the perfect exclamation point to her controlled anger.

Important: Notice how all her facts are facts, backed up either by in-context video clips or statistics from unimpeachable sources.

I would love to hear a Republican response to this video.

http://www.msnbc.msn.com/id/26315908/vp/40225485#40225485

Gun Control: Who Are the Real Terrorists?

The National Rifle Association is the biggest terrorist organization in America.

This powerful lobbying organization loudly opposes every attempt to legislate rational gun control. And with help from the Republican Party – and some Democrats – they are usually successful. As a result, each year around 30,000 Americans die by guns, according to federal statistics. That’s ten times the deaths of the 9/11 attacks – every year!

Many thousands more, of course, are severely injured.

The rate of death by gun is significantly higher in the U.S. than in other industrialized countries, most of which have much stricter guns laws than the U.S.

Some examples:

Firearm-related death rate per 100,000 population in one year is

  • United States – 11.66.
  • France – 6.35
  • Canada – 4.78
  • England – 0.38.

http://en.wikipedia.org/wiki/List_of_countries_by_firearm-related_death_rate

Imagine if 30,000 Americans died from swine flu, or food poisoning. The outcry would be deafening.

But things are about to get worse for Americans, thanks to a horrendous 5-4 decision from the U.S. Supreme Court, handed down on June 28th, 2010.

As the New York Times editorialized, “About 10,000 Americans died, in the four months that the Supreme Court debated which clause of the Constitution it would use to subvert Chicago’s entirely sensible ban on handgun ownership. The arguments that led to Monday’s decision undermining Chicago’s law were infuriatingly abstract, but the results will be all too real and bloody.”

The average right-to-bear-arms advocate (I’d rather call them nut jobs) will tell you that their “rights” are guaranteed by the Second Amendment to the Constitution.

Really? Ask that person to tell you how long that Amendment is — in pages, paragraphs, or sentences. Most, I’d bet, couldn’t give you the answer.

The Second Amendment is one sentence long:

“A well regulated militia being necessary to the security of a free State, the right of the People to keep and bear arms shall not be infringed.”

(There are several versions of the text of the Second Amendment, each with slight capitalization and punctuation differences. The version cited above is the one distributed to the states, and then ratified by them. (source: Wikipedia) Since no Amendment becomes law until ratified by the states, this, it seems to me, should be the official version.)

The first four words of this sentence are “A well regulated militia …” What part of “well regulated” is not clear? Why would those two words be there if not to mean exactly what they say? In one sentence, containing no hyphens, colons or semi-colons, the second part of the sentence must relate directly back to the first part. And the first part calls for a well regulated militia. (A militia was understood to be composed of “the People” in the various states, as opposed to a Federal army.)

If the Founders wanted all citizens to have unrestricted gun rights, they would have written this sentence: “The right of the People to keep and bear arms shall not be infringed.”

But they didn’t!

How, then, can the conservative majority on the Supreme Court justify its ruling to in effect strike down almost all regulations? Here’s a quote from the Fox News web site (it was regarding an earlier, similar anti-gun control ruling) …

Writing for the majority, Justice Antonin Scalia said that an individual right to bear arms is supported by “the historical narrative” both before and after the Second Amendment was adopted. http://www.foxnews.com/story/0,2933,372041,00.html

The “historical narrative” phrase sounds impressive. But to buy that argument you need to say that men who wrote the Bill of Rights were not capable of writing a simple sentence! To accept Scalia’s logic you must deny the actual words of our Founders and insert your own meaning!

It’s nonsense. It’s maddening. And it will kill thousands and thousands of Americans.

For people who think politics don’t matter – remember that the President nominates candidates to the Supreme Court, and the Senate confirms those nominations. (And don’t forget the Supreme Court rulings on abortion rights, environmental causes, campaign finance reform, and other issues that were decided by a 5-4 vote.)

Rational gun control is just one more reason why we need to keep Democrats in control.