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July 26, 2011

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Ben Franklin

It's an archetypal gamble. If it were just a gamble on the future existence of the Republican Party, that would be one thing.....

But your are gambling with everyone's future, just to get the WH back for a term of office....

Analogy; Moonshiners don't like "Revenooers" 'cause they don't need no paved roads nor bridges....

Porchlight

But your are gambling with everyone's future, just to get the WH back for a term of office....

Tell it to the Prez and Harry Reid. Obama nixed a deal for the identical reason you state above. This could have been solved by now if it weren't for him.

Carol Herman

Poor people will still be poor.

One of the signs of the Great Depression is that it affected what was known as Middle Class White Country. In Black ghettos it changed very little. As there were "rent parties" before the set in to poverty levels. And, so, nothing much changed in the ghettos at all.

This time? It wasn't just the blacks who voted in droves for Obama. McCain was a terrible candidate! He managed to divide his party ... and then HE LOST!

While obama BLEW IT! He took his first misstep at the beer summit. Or actually a bit before ... when he entangled himself in the Cambridge cops' "police matter."

Now? People are coping with bills they cannot pay.

And, most of the time Obama shirks responsibility. But not his golf game.

He won't be calling on Boehner, either, to "come out and play."

Perhaps, the only question I have left, now, is if Obama will be challenged in a primary. Where I don't think Hillary stands a chance! Who then? Well, not WU den.

Out 2 Lunch

Nope. The Tea Party Caucus will not fold. Boehner's plan is horrible and must be voted down.

As Republican Mo Brooks wisely noted, a default will IMPROVE our credit rating.

God bless the Tea Party Patriots.

Ben Franklin

"Burn it Down" Tea Party Patriots

sbw

Infested threads.

Appalled

Lunch:

Question. Leave aside the awful, terrible GOP for a second. Do you feel Obama has handled this issue effectively? Are you comfortable that he kind of threw away a chance to get the GOP out of a "no new taxes" crouch by changing his numbers on the revenue side? Would you rather campaign on these issues in 2012 than settle them now?

Out 2 Lunch

Obama is irrelevant to me, man. The Dems are the enemy of America.

Don't forget that Boehner is operating from a baseline that sees federal spending increase 9 trillion over the next 10 years.

As Rand Paul explained, his 2 trillion "cut" is really a 7 trillion debt increase.

The beast must be starved.

Cecil Turner

"Quick, raise my credit limit so I can spend more" is not a rational option.

If the choice is really between enabling ongoing $1.5 Trillion deficits by the Dems or "default," I'd pick the latter. Because as bad as that is, the former is a guaranteed disaster.

anduril

Why is this man smiling?

Eric Cantor Is The Hedge Fund's Man In Washington

Business Insider quoting WaPo:

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.

(Bold in original)

Hey, the greatest empire country on earth deserves the best government money can buy.

But in all bi-partisan fairness, I imagine Chuck Schumer answers the phone when hedge funders call and vice versa.

Cecil Turner

"Fighting changes" in the tax code? Ooooh, how horrible. (And what an obviously biased brain-dead framing of the issue.)

Jack is Back!

When do you think we will hear talk about "lowering" the debt ceiling? I mean that is what we (my family) are trying to do - shed debt. To be debt free.

I know that will be a tall task for the USG but consider the amount of investment and economic activity for any country willing to undertake such an enterprise. But then with all our boomer's retiring it is just another fanciful dream.

henry

Cecil, are the "changes in the tax code" referred to the change from treating capital gains as capital gains to treating capital gains as ordinary income for corporate investors that pass through returns to individuals? As I recall, these changes would end the above industries and greatly reduce investment and savings.

Richard O'Colgan

Thank GOD for the GOP. If Boehner’s plan goes thru, instead of adding 9 trillion to the debt we'll only add 7 trillion.

phew... that was close!

Danube of Thought

What is most significant about the past five days is that the president has become irrelevant. Either the house and senate will agree on a bill, or they won't. If they do, Obama will sign it regardless.

Cecil Turner

Cecil, are the "changes in the tax code" referred to the change from treating capital gains as capital gains . . .

I presume they're talking about the proposal to end the "carried-interest" "loophole," which they mostly cite as being applied only to hedge-fund managers (but also cite revenue numbers that can only be rational if they're applied to all such capital gains transactions) :

The discussions on raising the U.S. debt ceiling has included eliminating tax loophole that allows hedge fund and private equity managers to pay a 15% capital-gains rate on their earnings.
I have no particular interest in the proposal, except to note that both sides are using it to bilk fund managers of political contributions (as the linked story cites, Obama recently had a "$35,800 a plate dinner with hedge fund managers"). But the idea that a new tax is obviously warranted--linked to an ad hominem attack on anyone who opposes it--is past ridiculous.

And mainly I just weighed in to close the open [bold] tag that was fouling up the thread.

anduril

"treating capital gains as capital gains"

Wildly simplistic. Among many other places, here is a discussion of the issue.

And this is pretty clear:

Job cuts, not creation

Let's set aside the rather silly notion of private equity as an engine of job creation — most buyouts result in big job cuts — and focus on the inequality.
Private equity managers typically collect a 2 percent annual fee on assets in the fund, which is taxed as income. They also scoop up 20 percent of their funds' annual profits, which is known as carried interest. Carried interest is taxed at the capital gains rate of 15 percent.

That special treatment saves private fund managers billions of dollars in annual taxes for what amounts to income.

Little of their own money

Private equity managers typically put little of their own money in the funds they manage. They rely on investors to pony up the cash, so their 20 percent cut is more like a profit-sharing plan. It's part of their pay. Profit-sharing plans for just about everyone else are taxed as income.

The proposed law wouldn't even close the loophole completely. Private investment firms would still be able to claim 50 percent of their income as capital gains for two more years, and 25 percent after that, which would equal a tax rate of about 35 percent.

At the moment, that's in line with the top tax bracket, although the rate for top earnings is climbing to 39.6 percent, so private equity managers will still be getting a break.

Tax law is a murky world, but one basic principle of our tax code is that people who perform similar jobs for similar pay should receive similar tax treatment. That's not the case in the investment world.

Money managers for, say, a mutual fund company pay regular income taxes. Money managers for a hedge fund pay the far lower capital gains rate.

I should note that the proposed changes wouldn't affect other partnerships such as law firms or accountants. The current loophole pertains exclusively to the investment business.

Dave (in MA)

The JEF says he wants "millionaires" to pay their "fair share", but that if you earn under $250,000 a year you won't see your taxes go up.


By using Democrat math, I decided that I'm 24 feet tall.

Jim Ryan

Why we would default if we hit the ceiling? Couldn't we instead continue to pay the service on the debt and do emergency cuts in spending? I think those cuts wouldn't be enough to save the country from insolvency, anyway.

anduril

both sides are using it to bilk fund managers of political contributions (as the linked story cites, Obama recently had a "$35,800 a plate dinner with hedge fund managers").

Poor babies--bilked out of their hard earned money. Boo hoo! That was chump change for the hedgers, and the return on that investment was generous by any measure. The top 25 hedge managers received, on average, $570 million for a total of $14.25 billion. And Cantor got how much? $2 million bucks? Out of a pool of $14.25 billion, to guarantee a 15% rather than a 35% rate? As whores go, even on Wall St., that's a bargain.

One journalist attempted this:

Dear IRS: Please note that beginning this year, I am no longer earning an income. From now on, I am compensated through what I like to call column interest. It isn't pay. It's a capital gain that I receive in exchange for providing about 2,000 words a week to this newspaper. Please lower my tax rate accordingly.

Think it worked? He forgot the campaign contribution.

Mikey

Vote this bill down House Republicans and I will donate to anyone who primaries you. Dont be stupid and take the victory. If not this will be the greatest unforced political error since Obama moved the goalpost on Boehner.

Can both sides actually be that stupid?

Thomas Collins

BFF, if you really are an academic, don't you think you can do better than spout prog talking points about those who have concluded that the US must begin now to stop the slide to becoming a full fledged Euro Social State? If you think their view of monetary and fiscal policy is wrong, fine, let's have that debate. If you think that depressed growth is an acceptable price to pay for the asserted comforts of a bureaucratized state, fine, as the late great Marvin Gaye might have said, let's debate and get it on. Save your references to moonshiners and burning it down to those cocktail parties in which groupthink takes over and the partygoers have to communicate to each other the appropriate trust cues.

anduril

Look, let's be real about this for a moment. Any child knows that "carried interest" is not a capital gain. The tax break (compared to other profit sharing arrangements) was set up for the purpose of funneling campaign funds back to Congress--IOW, it's a kick back arrangement. Why do it with hedge funds, and not with all the other types of partnerships? Because of the concentration of huge amounts of money and the ease of administering the kick back arrangement--our hard working legislators are spared the necessity of chasing down every crummy little partnership. Let the back benchers scuffle for their campaign money.

So, the hedgers benefit, Congress benefits. You? Hey, screw you!

anduril

Ask yourself: who writes the tax laws and who writes campaign finance laws?

Thomas Collins

It is done in other partnership arrangements, anduril. For example, let's say a start up software business is operated through a limited liability company treated as a partnership. A partner who puts in little or no capital but has a profits interest receives capital gain treatment if his or her efforts result in the business growing in value and being sold for a whopping gain.

I realize you may make the following counterargument: in my software example, profits from current business operations would be taxable as ordinary income, while the private equity fund individual may be receiving capital gains on an ongoing basis. However, that is not a loophole; rather, that results from the federal income tax law's treatment of the private equity fund's activities as investment, not trade or business activity. If the equity fund is deemed to be a securities dealer, the ongoing profits would be ordinary income.

If as a policy matter Congress wants to prevent private equity folks from receiving capital gain on their contributions to the investment activities of their employers, there are people of good faith on both sides of that issue. However, the notion that a profits interest resulting in capital gain is some sort of tax shelter is nonsense. Such treatment is the result of longstanding federal income tax principles.

Thomas Collins

Another way to deal with the issue is to tax the value of a profits interest received by a service partner on the date of receipt of the interest as compensation income (which would be classified as ordinary income, not capital gain). However, that presents difficult valuation issues.

Neo

Hey, isn’t this the “Obama Recovery Decade” ?

anduril

It is done in other partnership arrangements, anduril. For example, let's say a start up software business is operated through a limited liability company treated as a partnership. A partner who puts in little or no capital but has a profits interest receives capital gain treatment if his or her efforts result in the business growing in value and being sold for a whopping gain.

1. The sources I cited recognize that not all partnerships are taxed the same way. They were talking about most common situations, and pointed out that the hedge fund situation is especially unique in terms of the huge amounts of money and earnings that are generated on a regular (yearly) basis without any apparent justification--mutual fund managers are not compensated in that way.

2. However, just because I'm interested and like to learn things that do me no earthly good--the portion that I bolded states that the capital gain results when the business is sold, presumably after the required time period to qualify for long term capital gains treatment? That seems quite different from the "carried interest" profit sharing scheme in which the 20% is paid out yearly, year after year, without any sale of the business.

JM Hanes

The Business Insider's internal links were screwed up, but the WaPo article is considerably more interesting:

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.
Makes sense to me. Can't imagine why this Administration would want to single out Wall St. Robber Barons for special treatment in a debt ceiling package, can you?
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.
No complaints about that outcome here! I don't have a problem with what amounts to taxing bonuses as ordinary income, but taking tax reform off the August 3rd table sure sounds like dodging a serious bullet to me. Democrats are dismayed!
..... 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.
Nobody knows more about anti-Wall St. obscurantism than Dems do, of course, but Holy Smokes! Folks might get the impression that tea party activists aren't the extremists gone wild they're cracked up to be. It might even put a crimp in the Democrats all out push to drive a wedge between the tea parties traditional Republicans.
anduril

SPECIAL INTEREST

excerpts:

In a typical private-equity fund, the managers get paid two per cent of assets as a regular fee, plus twenty per cent of the fund’s profits. They pay regular income tax on the two per cent. But on their share of the profits, which is called “carried interest,” they usually pay only long-term capital gains—even though they put up hardly any of the fund’s actual capital, most of which comes from outside investors. The difference in tax rates saves private-equity managers billions of dollars a year, and means that they pay taxes at a much lower rate than, say, your average lawyer. It also means that their taxes are lower than those of people who do the same kind of work, or get the same kind of pay, as they do. A general principle of good taxation is that similar jobs, and similar kinds of compensation, should be taxed the same way: otherwise, the government is effectively subsidizing some jobs over others. But the carried-interest tax break upends this rule. If you manage money for a mutual fund or a public company, you pay regular income taxes; do it for a private fund, and you pay capital gains. Similarly, when a corporate executive gets stock or stock options as a bonus for a job well done, it’s generally subject to income taxes; carried interest, which is also performance-related, isn’t. Like the rest of us, fund managers are being paid for their labor, but, unlike the rest of us, they get to pay taxes as if they were capital.

...

At a congressional hearing on the subject, Warren Buffett said, “If you believe in taxing people who earn income on their occupation, I think you should tax people on carried interest.”

Me: I continue to believe that if it looks like a duck, walks like a duck, and quacks like a duck, it's a freaking duck. OIW, the question cui bono? explains this situation.

JM Hanes

anduril:

"As whores go, even on Wall St., that's a bargain."

I gather it takes an expensive whore to command your respect.

On the other hand, the bargain doesn't look quite as good when Cantor would have manned the ramparts for free.

anduril

let's say a start up software business is operated through a limited liability company treated as a partnership. A partner who puts in little or no capital but has a profits interest receives capital gain treatment if his or her efforts result in the business growing in value and being sold for a whopping gain.

And this is done out of charity? Or because the partner who is put in the way of this potential bonanza has something of value to offer beyond money, like, special expertise without which the company couldn't get off the ground? That seems very different from a purely management role.

Danube of Thought

Wahoo! Scumbag Kerry attack dog in federal pen for child porn; stripped of Silver Star.

Thomas Collins

Not so different, anduril. In both cases, the capital gains character at the partnership level is passed through to the partners. As I mentioned, the ongoing operations in the software case are taxed as ordinary income to the service partner. However, the private equity person gets ongoing capital gain only if the activity at the partnership level is an investment activity.

Now, I think the best argument for taxing a portion of so-called carried interest at ordinary income rates is that although the partnership level activity is investment, what the service partner does looks like typical services that are taxed at ordinary income. But remember, anduril, that if you are evaluating investment opportunities as an investor, not a dealer, your gains are capital gains. So I think much of the outrage of those who want to tax carried interest is ordinary income is misplaced. However, I can see the point of those who argue that some of the equity fund service partner's income should be ordinary income.

If you want to pursue the background of the taxation of profits interests, Google Sol Diamond and you will come across a lot of material (cases, research articles, policy pieces) on the history of the taxation of service partner income.

Jack is Back!

DoT,

The really good news is he was stripped by Mabus (of the Democrat regime) for reasons other than the child porn felony conviction. I wonder if Kerry is getting a little nervous about his version of events 40 some years ago???

Cecil Turner

The whole argument is a red herring. There's not enough revenue there to retire a significant fraction of a tithe of the deficit, and we just tinkered with the tax code a few months ago. The issue on the table is debt, and that's driven almost entirely by spending profligacy, and it's driving up to a train wreck in less than a decade:

Trying to find marginal revenue enhancements in the face of runaway entitlement spending is rearranging seat cushions in the dining car.

anduril

what the service partner does looks like typical services that are taxed at ordinary income.

Indeed. In fact, they look like typical services because they ARE typical services. What's it worth to you to have your services taxed at 15% v. 35%--like everyone else in your bracket? That depends on how much you're getting for your services. If it averages $570 million per year, you might consider tossing some spare change in the direction of relevant Senate/House committee chairmen. And if your a relevant Senate/House committee chairman you might want to maintain that situation, while making periodic noises about reform to keep one side in a charitable frame of mind and the other side impressed with your willingness to at least consider reform.

anduril

Every little bit helps--especially when the excess is given disproportionately to Dems.

Cecil Turner

Changing the tax code every six months is the worst possible policy.

Drider

How quaint,after all of the bluster and steadfastness we seem to be almost back to square one but with some new additions.

1.THe new JB plan is not a zero sum plan, it will allow a large initial increase insantly of a trillion dollar.
And then it gets almost humorous,6 members in each house,3in each being Democrat and Republican will form super duper committees.How these members are chosen must be by drawing straws being when the second payment of 1.2 trillion comes around these committees must have made cuts equaling the initial 1trillion dollar payment.At that point the people in the committees are basically the sacrificial lambs to hold up to the public on why they can't reach their goal of a trillion dollar cut.

So at that point, the committees can be deemed a failure and an angry JB and Cantor can come back,do the line in the sand bit before setting up two more committees.

At what point do you really say no, after the Republicans take back control and have the power to " soley" make the cuts that are needed.Are we really to believe that they would then make the hard decisions at that point.
Not a chance.

Quite frankly Im a bit pissed at myself for believing that the Establishment could honestly see our counties predicament and lead accordingly,joke was on me

narciso

This is coming from Greg Sargent, but it sounds plausible from these people:

Senate Dem aides say they would then use Boehner’s bill — which passed the House but died in the Senate — to expedidate their own proposal. Here’s how. They would use the “shell” of the Boehner bill as a vehicle to pass Harry Reid’s proposal, because for various procedural reasons House messages get expedited consideration. Senate Dems would vote to “amend” Boehner’s bill by replacing it completely with Reid’s proposal — which the Senate could then pass more quickly than they otherwise could.

anduril

Changing the tax code every six months is the worst possible policy.

I happen to agree with you on that, and I would generally favor an approach that would refuse any tax changes except in the context of a general overhaul. However, some of the negotiations seemed headed in that direction--an overhaul that would lower rates but make other reforms. That would interest me.

DebinNC

So Republicans have the power to "soley" make the cuts that are needed? Well, that's good news. I mistakenly thought the Senate and Prez had the power and desire to stop them.

anduril

Quite frankly Im a bit pissed at myself for believing that the Establishment could honestly see our counties predicament and lead accordingly, joke was on me

Fool you once...

Captain Hate

El JEFe has said he will veto Boehner's bill.

anduril

Tribal Rivalries Complicate Libyan War

That's a big story in Der Spiegel.

Porchlight

Senate Dems would vote to “amend” Boehner’s bill by replacing it completely with Reid’s proposal — which the Senate could then pass more quickly than they otherwise could.

But then wouldn't it still have to come back to conference? I know they got around this with Obamacare.

Extraneus

That about sums it up, Drider. Good post.

glasater

I think this headline is for sure. At least it's not from The Onion:

GEORGE SOROS JOINS REPUBLICAN PARTY

Cecil Turner

However, some of the negotiations seemed headed in that direction--an overhaul that would lower rates but make other reforms.

The hedge fund bit isn't one of those, and besides it's ridiculously picayune. 14.25 billion? And we get an additional 20% of that? What's that, 2.9 billion? So instead of needing 1.5 trillion in cuts, we only need 1.4971 trillion? Do I need to point out you have to go to the fourth significant digit to find the point where the roundoff changes the number?

This is simply not germane to the debt limit discussion. It's a distraction to avoid talking about entitlement reform, playing the class warfare card (again). Holding up these guys as exemplars of evil greedy types that are draggin' the little guy down. It's risible stupidity, and taxing hedge fund managers out of every cent they own wouldn't change the bottom line to any appreciable degree.

Thomas Collins

Anduril, in your above excerpt of my post about service partners, you left out the part that pointed out that when an individual engages in the same type of activities for his or her own account, the character of the gain is capital, not ordinary. I think one has to balance these two aspects (what the service partner does looks like an ordinary income activity versus investment activities, even if folks spend a lot of time on them, are capital gains activities).

As to the willingness of the private equity fund industry to spend lots of dollars to preserve this tax treatment, I would agree that big bucks are at stake. However, that doesn't make the current treatment a tax shelter.

Janet

Perhaps Congress could close down one thing to show us that they can do it. One thing.

Cecil Turner

Anduril, in your above excerpt of my post about service partners, you left out the part that pointed out that when an individual engages in the same type of activities for his or her own account, the character of the gain is capital, not ordinary.

Conflating the two is an integral part of the Dem red herring, because it allows discussion of an amount of prospective revenue that is more substantial.

DebinNC

Drudge is featuring a WashTimes "GOP revolt against Boehner plan" saying there aren't enough R votes to pass it and Hoyer says ditto on Ds.

This surprised me: "Both the Heritage Foundation and Club for Growth, two key conservative activist groups, are also urging a “No” vote and said it will be one of the key votes they use in their annual lawmaker scorecards."

Sue

DoT and JiB,

I just read that at AT. I wish they would explain why they removed him of his SS.

pagar

"Stripped of Silver Star"
Thanks for that link at 03:25 DOT.

The action to strip him of that medal was taken mid 2010 according to the LUN. It had to have been unclassified IMO. A

There has to be something going on IMO, I can't believe the Sec of the Navy gets up one morning and decides to strip a former Asst Sec of the Navy of his Silver Star all on his lonesome. Especially one who could call on a senior Senator to protect him. A press that gets a twitter message every time Sarah Palin takes a breath didn't find out about this for a year?
Strange

Porchlight

A press that gets a twitter message every time Sarah Palin takes a breath didn't find out about this for a year?

Maybe Kerry pulled strings to have this hushed up. Plus, the MSM hates the Swift Boat Vets, so that helps Sanders.

pagar

"Plus, the MSM hates the Swift Boat Vets, so that helps Sanders." There is no doubt about that.

There are dozens of pro military and probably at least as many anti Kerry groups that could have gotten that info out of the Sec of Navy's office. With all the Wikileaks etc stuff going on, the fact that it could be kept quiet for a year ought to really worry people, IMO.

Janet

the fact that it could be kept quiet for a year ought to really worry people, IMO.

Absolutely. The Sandy Berger stealing national security documents story had a lag time too....from being caught to the story being reported. It is like "they" need clean-up time & time to get the spin story straight.

Chubby

glasater it is a spoof; look at the other content on the site

Porchlight

Good points. We should have heard *something* even if the MSM didn't pick it up.

Ignatz

Don't tell anduril but timber owners are allowed to declare timber income as either capital gains or ordinary business or individual income depending on what is most advantageous on each separate sale.
And don't tell Ben but we get a depletion allowance just like the nasty oil companies.

Sara (Pal2Pal)

I just got 3 emails from the Tea Party Patriots and 2 emails from Barack Obama, all ordering me to contact Congress and let my voice be known. Don't ask me how I got on BO's mailing list, it started about 5 mo. ago and I have no idea how.

centralcal

Mum's the word, Iggy. **wink**

anduril

Just back from a hair cut--a literal one, that is.

Anduril, in your above excerpt of my post about service partners, you left out the part that pointed out that when an individual engages in the same type of activities for his or her own account, the character of the gain is capital, not ordinary.

That's because I think that that's a red herring (h/t Cecil). If a hedger invests his own money, that's fine if he gets cap gains treatment. He'll also have to document whether it's long term or short term for each investment. But the point is, the hedger is NOT investing for his own account--he's getting a share of the profits as compensation for his services. If the investment loses money, he still gets his 2%, but the investor loses his capital. I really don't see the relevance of hypothesizing that the partner did something that he didn't in fact do.

However, that doesn't make the current treatment a tax shelter.

This is the second time you've used that term "tax shelter." Neither I nor anyone I quoted used the term, so I'm at a loss to see what point you're making.

Perhaps Congress could close down one thing to show us that they can do it. One thing.

Good for you, Janet. The point is, however, that they don't really want to close this one down--they just periodically talk about it. What Cecil is missing here is very important. Cecil thinks $14.25 billion is chump change in the overall budget scheme of things. If this were just about the budget, he'd be right--but it's not just about the budget. It's also--from Congress' standpoint--about financing political campaigns. And when you start talking about money in politics you're talking about leverage.

Look at it this way. Suppose you're running for President, and suppose that your shot at the presidency rides on the results from one state, and the polls are too close to call. If I give you the money that buys you the ads that put you over the top--say, it's just a few thousand bucks, but without it you can't pay for that last ad campaign--what was my support worth to you? The amount that I contributed? Or maybe one helluva lot more, because you leveraged my small contribution into the presidency? That's leverage. And guess what? Foreign countries understand that, too, which is why they try so hard to get their money into play in US politics.

So, yes, in a way Congress is shaking down Wall St., but otoh Congress has to keep it worthwhile for Wall St. to let itself be shaken down. Like, maybe Congress has to periodically bail out that goose that's laying the golden campaign contribution eggs. One hand washes the other.

anduril

"Timber owners own WDC"

"Wall St. owns WDC"

Which is closer to the truth? Did timber owners get bailed out to the tune of how much? And don't kid yourselves--the bailout is ongoing. Maybe it's a difference of degree, but at some point a difference of degree can become so huge that it's tantamount to a difference in kind.

Extraneus

Perhaps Congress could close down one thing to show us that they can do it. One thing.

You have a knack for cutting through the b.s, Janet.

IMO, only a Balanced Budget Amendment, or maybe failing to raise the debt limit, would force them to do such a thing. Even if Republicans completely take over the gov't, I wouldn't hold out much hope for defunding even something as odious as NPR or Planned Parenthood, never mind more significant wastes of taxpayer money. They need to be forced.

I heard Boehner on Rush today, and he was pretty lame when Rush asked him about the point Drider made above: that his current proposal allows Obama to spend $1T immediately, and requires a "select committee" to propose cuts of $1.2T over ten years to make up for it, if they could even do that.

It's pretty obvious from Cecil's sober analysis that they're still just nibbling on the political edges, and doing little to avert disaster.

Extraneus

The call for people to phone Congress is silly. Congress knows that every major polling outfit confirms that public opinion is squarely against tax increases and in favor of real spending cuts, and most of these polls are much more scientific than the SEIU gaming some phone-bank op.

anduril

Cool. Via FR:

Mountain Lion travels 1,500 miles on its own to CT.

by The Middletown Press

The Connecticut Department of Energy and Environmental Protection said today that results of genetic tests show that the mountain lion killed in Milford in June made its way to the state from the Black Hills region of South Dakota and is an animal whose movements were actually tracked and recorded as it made its way through Minnesota and Wisconsin. Genetic tests also show that it is likely that the mountain lion killed when it was hit by a car June 11 on the Wilbur Cross Parkway in Milford was the same one that had been seen earlier that month in...

Extraneus

Good video of Carney being hammered on the question of "Why doesn't Obama have a plan?"

Thomas Collins

Anduril, when I used the term "tax shelter", I was using it in a layperson's sense to refer to a tax benefit that wasn't justifiable. You clearly made such an assertion when you stated:

"The tax break (compared to other profit sharing arrangements) was set up for the purpose of funneling campaign funds back to Congress--IOW, it's a kick back arrangement."

When I look back at your quote, I now realize that I was being understated when I implied that you considered carried interest to be a tax shelter in the sense of its being an improper tax benefit. You are calling it a kickback.

As far as your point about the investor putting his or her money in the deal, I agree that is a distinction that might justify carried interest legislation. However, my statement is simply not a red herring or any other kind of fish. In partnership taxation, unless an exception applies, income flows through to the partners with the same character as the character it had at the partnership level. If your argument is that this general rule is inappropriate in the circumstances of this case, I have previously stated my view that those of good faith may have different view on this issues. But before using terms like "kickback", you really should do a little more background research into the history of the taxation of profits interests.

Google "Sol Diamond profits interests" (I previously suggested you Google "Sol Diamond", which would be fine, but I think "Sol Diamond profits interests" would produce even more useful material) to get sources on how the taxation of profits interests developed, and you will find that it is not quite as sinister as the term "kickback" might suggest. You will see that these rules apply to all partnerships, not just hedge funds.

Extraneus

I don't claim to understand everything you've posted on this, TC, but I appreciate your willingness to expose the rest of us to what would otherwise cost us legal fees to learn. I should add that I always appreciate the expert legal analyses that you and your fellow non-shysters are willing to write about for free.

Thomas Collins

Thank you, Extraneus. It's great to have a blog whose posters have such a wide variety of knowledge (although I suspect that discussions based on knowledge of financial markets, hunting, farming, cooking and photography, among other skills on display here, are slightly more popular than tax arcana).

Extraneus

Obama team threatens to veto Boehner debt plan


Like Obama is really going to veto whatever gets through the House and Senate.

Make my day, BH.


Extraneus

Thatmight be a good pic to use for when he dyes his hair again, Janet.

Jim Rhoads a/k/a vnjagvet

As to the topic at hand, it was just announced on FXNews that the Boehner Plan doesn't have enough Republican support to pass.

Krauthammer thinks failure to pass that plan in the House will be suicidal for the Republicans because it will cede all of the leverage to the Senate and President.

When I acted as a neutral mediator I had a saying I learned from a very savvy negotiator: "Pigs get fat; hogs get slaughtered".

anduril

Anduril, when I used the term "tax shelter", I was using it in a layperson's sense to refer to a tax benefit that wasn't justifiable.

But that's not how I use the term, and I didn't use it because that's not what I wanted to convey. I did use the term kickback, to describe the symbiotic relationship between Washington and Wall St., whereby both benefit financially.

As far as your point about the investor putting his or her money in the deal, I agree that is a distinction that might justify carried interest legislation.

Fine.

before using terms like "kickback", you really should do a little more background research into the history of the taxation of profits interests.

When I used the term "kickback" I was using it in a layman's sense to refer to an arrangement by which a person gives money to a person who is in a position to confer a benefit either by action or inaction and then returns part of the benefit. I by no means consider this to be the only "kickback" situation--the entire campaign contribution system is rife with it.

I realize that I probably should have called it a simple "bribe," but I was, after all, using "kickback" in a layman's sense. Moreover, the continuing nature of the relationship does give it the character of a kickback: benefit is received, out of which campaign contributions are made, "kicking back" part of the benefit, intimations of "reform" are made, triggering future contributions out of the benefit received. People of good will can differ over the best term to describe this situation, bearing in mind that it may originally have been unexceptionable in terms of partnership tax law, but I think people of good will will agree that it has become an outrageous scandal.

Perhaps this situation only became so reprehensible with the rise of hedge funds, but the reality is now very corrosive of public trust and has been going on for far too long.

MarkO

62% want a "compromise"? Who wants his taxes to go up? What kind of a poll is that? Heard Harry say no, no, no.

To hell with it all. Self help is the next new thing. Watch and learn.

centralcal

Jim, not only did Boehner not have enough support, but the CBO scores came back and it was less than $1 trillion in savings (most coming in the 10th year) and only $1B this year.

Steel, Boehner's spokesman says they are re-writing the plan.

Extraneus

That pic was a lot smaller at Drudge (yeesh!), but it's obviously the determined face of an income-redistributionist economic sabateur, not quite at the top if his game. It might go well next to the dictionary definition of failed Fascists, although some of those were strung up by their feet, and I won't post those pics. Although I will link them.

anduril

Clarification: obviously "bribe" and "kickback" refer to illegal acts. In the relationship between government and regulated industries, since government makes the laws, those acts are not actually illegal. However, the reality of paying money in exchange for government action/inaction remains, and is just as crooked as if it were illegal.

Jane says obamasucks

Jim,

I agree with Krauthammer, and Britt Hume before him, altho I am holding out hope that boehner strengthens the bill rather than weakens it.

centralcal

I am mostly troubled by the creation of another "commission." We elect representatives and then they "appoint" a few special ones to get together to wheel and deal?

I absolutely detest this part of Boehner's plan and pray he strips it out.

Danube of Thought

I also agree with both Hume and Dr K.

Very nice work, Cecil T--well-informed and succinctly stated. As Janis Joplin said, "anybody who thinks a dog is man's best friend hasn't met a good tax lawyer."

Extraneus

Is everyone agreed that the debt ceiling really needs to be raised?

If it isn't, wouldn't that force the federal gov't to cut spending in order to service the debt and "live within our means"?

Considering the trends that Cecil posted above, it might be better to find out now rather than later, although I'd prefer if it happened under a Republican president, since I'd trust the cuts more.

But really, is there more federal spending that the 50% who pay taxes would care more about than the 50% who don't?

Captain Hate

Is everyone agreed that the debt ceiling really needs to be raised?

No; at least not by the artificial date they're using.

Jane says obamasucks

I would much prefer they don't raise it simply because it would start to clean out all the waste which is ridiculous.

We need a lot more tea party electees to ever get there.

glasater

Has anyone seen this breaking--sorta--news on the gunning running hearing?

Breaking updates on House investigation of DOJ-ATF gun smuggling (NEW UPDATE)

The committee chaired by Issa disclosed today that it possesses emails showing that the Phoenix field division of the ATF informed the NATIONAL SECURITY COUNCIL about the activities associated with Operation Fast and Furious, according to correspondent David Codrea. The disclosure is not an insignificant factor in this scandal, given that the NSC is made up of the most powerful people in the country, and some of the most powerful in the world:
Ben Franklin

The 51% Zombie Lie

http://motherjones.com/kevin-drum/2011/07/51-zombie-lie

Every morning I take a couple of short breaks from the keyboard to do some stretching exercises that are designed to ease my neck and shoulder pain. I usually turn on the TV while I'm doing this, and that's pretty much my entire exposure to Fox News. So what were they going on about a few minutes ago while I stretched? The fact that people get really upset when they hear that 51% of. Americans pay no taxes.

Well, I'd be upset too. Who the hell are these freeloaders? Answer: they don't exist, of course.

glasater

The D's seem to think default will play into Obama's hands. Don't understand that one at all.

pagar

"Is everyone agreed that the debt ceiling really needs to be raised?"

No!

Better to do it like the credit card companies do. Send you a letter saying your credit limit has been increased only when you don't need it.

glasater

"Americans pay no taxes."

It's income taxes 51% of working people do not pay.

narciso

I was thinking about the F&F, how would say Justice, prosecute said violations, when the fracking US Atty in Arizona, Dennis Brooks
was running that part of it. And he is in turn tied to Napolitano, at DHS, from the get go.

Ben Franklin

http://www.balloon-juice.com/2011/07/26/waiting-for-the-knife-in-his-back/

Waiting for the knife in his back

by Dennis G.

I almost feel sorry for the Orange Man.

If you listened to his rhetoric since becoming Speaker, it was clear that he wanted to get something done. That he wanted to legislate. It was even clear that he understood compromise had to be part of the solution. At one point in the process, I even think he approached negotiation in good faith, but that is all in the past. Today, John Boehner is a lost and frightened man.

Ben Franklin

"Don't understand that one at all."

glas;

You should get out more......

Danube of Thought

"Today, John Boehner is a lost and frightened man."

Not sure about Boehner, but the description is certainly apt for Barack Obama. And he has not negotiated in good faith since these discussions began.

As for compromise, he ageed to $800B in new "revenues." having secured that concession, Obama promptly demanded 50% more.

Jane says obamasucks

Glasater,

I've seen bits and pieces of that - really all day to day. The Washington Post even did a bland story on F&F today. Nothing will break until after the debt ceiling argument, which probably makes Obama happy about the debt ceiling argument.

In a just world, he would be toast.

Ben Franklin

Nice Epitaph, Dot,,,,,,

Extraneus

Yeah, you got me. The bottom 50% pays a federal income tax rate of 2.6%.

Captain Hate

Don't understand that one at all.

They must be planning on their MFM buds to blame it all on Repubs but I don't think it will work this time. First of all, I think more people are informed that a default would be based on a political decision by the JEF. Also the horrible economy gives Toonces less good will than Clenis had.

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Wilson/Plame