Good gawd. Just tax all income at the same gawd damn rate and be done with it.

What Disputo said. This should be such an easy no brainer.

Disputo: Just tax all income at the same gawd damn rate and be done with it.

Hear, hear. An uproar about what can be classified as capital gains is ignoring the elephant in the living room - there is no economic justification for capital gains rates. It's been empirically shown that it does nothing to increase investment. "Compensation for risk" arguments are just plain bullshit.

Hey, Kevin, you never answered all the questions in the previous thread - what's your beef w/ RFK (and is it Jr. or Sr.)?

Ah, Kevin.

First they raised taxes on management fees for hedge funds, and I did nothing, because I did not own a hedge fund.

Then they raised the capital gains tax rate, and I did nothing, because I had no capital gains.

Then they raised marginal tax rates on the richest income earners in the country, and I did nothing, because I was not rich.

They closed the AMT, reinstituted the death tax and implemented a carbon tax, and none of that concerned me.

And then they raised my taxes, and there was no one to stop them because there was no longer an incentive to work.

- Moira Urbanick

It's always weird to see lists of arguments against taxes that somehow manage to leave out stating the clearest and the key harm of taxes: that it makes society as a whole poorer, meaning that there is less to go around in the first place. Talking about the disincentive to work and reducing incentives are basically on the mark, but it can be stated a lot more simply: taxes make things more expensive than they otherwise would be: harder to make and harder to buy. They make people less likely to do and to get the things they want, and as a result the world is _permanently_ that much poorer (i.e. we've forgone the opportunity, and can never recover it). Period.

That's not to say that taxes are never worth the cost, but the cost should be acknowledged forthright and upfront so that we can weigh it against the benefit, instead of treated as if it were some sort of dismissable bizarre right-wing la-la land fantasy.

Bad,

Is your last name Argument?

It's always weird to see lists of arguments against taxes that somehow manage to leave out stating the clearest and the key harm of taxes: that it makes society as a whole poorer, meaning that there is less to go around in the first place.

Yeah, it's a damn shame that the gvmt throws the taxes they collect into a furnace instead of directing them back into the economy....

The Senate Finance Committee lives off provisions in the tax code that advantage specific groups of taxpayers. It does not live by doing away with such provisions.

Taxing carried interest as regular income is a big ticket item as far as individual tax provisions go. It could pay for a multitude of smaller tax breaks for more numerous constituencies. But if Finance Committee Democrats were not already disposed not to tamper with an existing tax break, Sen. Reid's refusal to jeopardize his party's access to a prime source of campaign funds would seal the deal. Not only hedge fund managers but the many lobbyists working for them can funnel money in large chunks into Democratic campaigns, and this will be Reid's bottom line (if you'll excuse the expression) as long as he is Majority Leader.

Agree that the Republicans' obstructionism should be tossed in the furnace. But this one: Hey, Kevin, you never answered all the questions in the previous thread - what's your beef w/ RFK (and is it Jr. or Sr.)? Hey, are they trying to get Kevvie in a fight?

Oh my. Silly Kevin. You really thought the Senate leaders would do anything to upset their mighty Wall Street paymasters? And you're a political blogger?

But seriously. Wall Street has been concerned for some time that our tax code is driving more of this kind of hedge fund/high-end M-A activity and IPOs to places like London. But it's really the corporate tax policy that's the problem here. Europe taxes people who make money a lot more than they do businesses that make money, creating a more progressive tax code in the end. It also is why Europe still has a solid manufacturing/export economy while ours is whithering rapidly. Perhaps we could offer these fat cats a deal. You pay income tax on your "management fees" and in return the government encourages productivity and entrepreneurship by cutting the corporate tax rates of the companies investment banks and hedge funds profit from.

Apart from getting killed by Bush and Cheney, the next biggest problem this country faces is that the entire government is now a wholly-owned subsidiary of the 5,000 richest Americans.

Everything the Feds do stems from that simple fact.

What craigie said.

Anyone seen an IRS justification for taxing earned income as if it were a capital gain? It's pretty obvious that for those who put up the money their return is capital gains, but those deducting a charge from that return are deriving a reward for their services, constituting income not any return on capital. If they then had some of their own money in the fund, their return would be capital gains if at the same rate of return as other shareholders.

It's pretty elementary. Which administration flack pushed this through?

Bad?

tax[ing] carried interest as regular income...could raise an extra $6 billion a year in personal income taxes.
-http://www.washingtonpost.com/wp-dyn/content/article/2007/10/08/AR2007100801704.html

Increasing taxes on these plutocrats 20% would raise 6 billion?...!!!

[Stunned silence... ... ...followed by small voice muttering, "That's the whole WIC program for 2007...or 2 weeks in Iraq...or the Iraq overcharges of Halliburton and KBR combined - with enough left over to buy the whole damn US Senate..."]

Whatever.
It's one hell of a lot of money.
Just how many people are we talking about anyway?

"taxes make things more expensive than they otherwise would be: harder to make and harder to buy.

Indeed, as Oliver Wendell Holmes put it, "taxes are the price we pay for civilization." I suppose Bad assumed all this time that his running water, police services, schools, etc. were provided by fairies?

...provided by fairies?

Probably not. Extrapolating from his previous post's economic sophistication Bad most likely thinks it's the invisible hand of the market.

Sorry. Couldn't resist.

But allowing management fees for hedge funds to be taxed at capital gains rates (15%) instead of the normal income tax rate (35%)? That's a no-brainier.

Don't confuse management fees and carried interest. Management fees taxed at income tax rates? Seems appropriate. Carried interest--as in nominal equity contributed by fund managers--taxed at capital gains rates? Seems appropriate. The problem is that the difference between two are not as clear as might be desired.

Kevin -
The problem is that while its terribly easy to make an argument as to why hedge fund GP earnings should be taxed as ordinary income, its really difficult to argue as to why this tax regime shouldn't then apply to all investment partnerships, including real estate, oil & gas, film production, etc., all of which use the same loophole. Suddenly you went from affecting a relatively small group of people to a much larger and influential group.

That's why its a tough sell - you can't selectively prosecute hedge funds.

There are also all sorts of arguments in favor of high taxes - the most compelling one is that the United States is bankrupt, thanks to the Republican Party.

What "The Conservative Deflator" fails to understand, is that we are bankrupt from over spending not from under taxing! When the tax rates have been lowered the government gets more money. Happens every time its tried!

The DLC and it's cronies rear their ugly heads.

Isn't this what the Clinton's are all about?

Isn't this why Marc Rich got a pardon - and this is why I really don't want to vote for the Clintons - they're just another Bush administration in the flesh - so I'd vote for Obama and try and break the link.

I won't vote for the Clintons ever again. I'd rather the Democrats be defeated and have to face real leadership struggles than have the moneyed elite locked into power within both parties for the rest of our admittedly short history.

Kevin: Supply siders say that high marginal income tax rates reduce people's incentive to work.

If this is true, it shows a failure in the market. In an efficient market, if one person decided to stop making widgets after making, say, $10 million that year because of a 50% tax on income over that, then someone else would step in to make the widgets. Either that, or the price of widgets would go up, due to lower supply, and the other makers of widgets would pay more tax on their higher income.

When will the "trickle down" argument finally die, even among Democrats? How many more decades will it take before we realize that special breaks for the rich do nothing larger than to hand over more money to the rich?

In any other context, it would be shut down as a consumer scam.

Disputo: Just tax all income at the same gawd damn rate and be done with it.

Okay. I think that's a good idea. Let's tax capital gains, gift tax, estate tax, earnings from hedge fund managers, dividends, and any other kind of income I've forgotten at the same percentage as the payroll tax plus income tax paid by someone making $50,000 a year.

That would get Congress to lower the payroll tax quickly.

I've always thought we should tax people according to what they get from the government.

Anybody think that a billionaire doesn't get more from the US government than the average working stiff?

So why shouldn't he pay his fair share?

Ah, and there's the rub. The Americanist says So why shouldn't he pay his fair share?

The taxes on hedge fund managers didn't just arise from thin air. I thought you knew all about the legislative process which makes amendments to the tax code to permit taxing such earnings as a return on capital rather than ordinary income?

What do you think is a fair share since you conclude that the current tax scheme isn't fair?

I've always thought we should tax people according to what they get from the government.

And yet another statement that makes no sense at all.

So if someone receives government assistance, their taxes go up? What about the people on Medicare or Medicaid that are drawing Social Security? The people who "get" from the government are the people usually least able to actually pay.

You base taxes on what people actually have. For a lot of people, they pay property taxes on the assessed value of their property, and that's what keeps cities and states from going broke trying to fulfill unfunded mandates from the Federal Government. If you have less, you pay less in tax. If you have more, you pay more in tax. This is how society has successfully organized itself in the modern world.

Rich people have bent themselves into pretzels, trying to put forth grandiose schemes to shave off whatever taxation they can avoid paying, trying to get people to believe all kinds of fallacies like the wisdom of a "consumption" tax or a "flat" tax. This is all designed to keep them from parting with their money. The Federal government plays along, dishonestly passing unfunded mandates to the states to keep from doing their part to responsibly balance budgets and allocate resources. Unnecessary wars and ridiculously large tax breaks for people that don't need them cause us to drown in debt. No, I don't believe in Socialism; I think we're well overdue for a correction to our Capitalist model, similar to how we addressed the issue of robber barons in the early 20th Century. We have robber barons today--how do we deal with CEOs that make 1500 or more times what their workers make?

Push that progressive tax rate on rich people up higher and a lot of the problems associated with entitlements can start to be addressed. We will need to means test entitlements soon (it's inevitable) and we will need to address the solvency of Federal programs. You're not going to be able to raise taxes to completely fix the problem, but raising taxes is the only way to get on the road to fixing those programs.

If you make more than 250K a year, you ought to be paying 39%; If you make more than 750K a year, you ought to be paying 45%.

Anything more than 10 Million a year--you pay 55%.

Start with that idea and then you might have something.

Poor Americanist wants to light his cigars with 50 dollar bills and stick it to the poor. What a fraud. Have you ever been able to think straight? What chemically induced imbalance is causing you to spout off in public like a deranged squirrel?

Anyone seen an IRS justification for taxing earned income as if it were a capital gain?

AFAIK, the IRS has never really ruled on this particular point as applied to hedge funds. At any rate, here's the short version: at the outset of the fund, the manager gets a profits interest in the partnership. Because that interest is for future profit, rather than being tied to a current contribution of capital, it can't be measured and taxed.

The weird part, and the horrible logical leap, is that that's taken to mean that the partner now has an interest w/ zero basis. Once the manager has that zero-basis interest, the rest is simple: it's a partnership, so the income is all flow-through to the partners. A capital gain at the partnership level is treated like a capital gain on the partners' individual returns.

I really don't see why the transfer interest has to be valued at -o-, rather than treated as something like deferred income (just measure it a few years down the road when it starts paying off, maybe). Or just treat income from profit interest less capital account as ordinary income. That, frankly, seems to me to be what IRC 707(c) is aiming at: if a partner is receiving a transfer of profit interest in exchange for services, the transaction is treated as if it were between the partnership and a 3rd party, and the income is therefore ordinary income.

All that to say that the cap gains treatment is hanging from a thin legal thread, IMHO.

The taxes on hedge fund managers didn't just arise from thin air.

Actually, it kinda did. There's no "hedge fund manager" section of the code. There was a random decision about 30 years ago, and when hedge funds started doing there thing, they asked their lawyers to find a way to avoid tax (just like anyone do). So they retrofitted the hedge fund structure into one obscure tax court case (Diamond) and an equally obscure IRS revenue procedure (not even a rev ruling, mind you).

So, yeah, it did kinda come out of thin air.

Oh, and in the interest of bi-partisanship (fuck you, Republicans--I think you're all scumbags and ratfucking perverts), I think the way Congress hands out earmarks needs to be changed dramatically. I wish the Democrats would swallow their pride and make the process more open and more responsible, but then again--why do Democrats have to always be the party of fiscal responsibility? The Republicans came to power in 1994 with the notion of ending big government and cutting Federal Spending, and they basically had a 12 year orgy of spending that would make Caligula blush.

Where does 'Hillary the Great' stand on this? She should be out front and center on this issue and push this revision in the tax code through NOW!!!

Oops. I forgot, Hillary is from New York and is in the pocket of the financial community there. She has accepted more special interest money than any other candidate. Most from financial, pharma, or insurance firms...

Vote John Edwards, maybe Obama, or Vote Green!

Avoid the 4-8 year Hillary Headache.

Avoid the 4-8 year Hillary Headache.

Now I'm confused. I thought Hillary was going to raise taxes and give us socialized medicine. But now you're saying that she's taken a lot of special interest money and will protect the natural constituency of the Republican Party, the billionaire.

Which way is it? Can you sort of see why we think you're foaming at the mouth and stupid beyond all belief?

The last time DSCC called me for money I told them that Chuck Schumer could raise funds from his hedge fund buddies and leave poor working stiffs like me alone. When the tax rate changes, I'll consider contributing again.

Egbert writes:

First they raised taxes on management fees for hedge funds, and I did nothing, because I did not own a hedge fund...

That's right, taxes are just like the Holocaust.

Pale Rider:

That's the funny thing about Mrs. Clinton. The right has attacked her as some kind of socialist, when actually she is the farthest right of any of the Democratic Presidential candidates. Maybe that is what the right is afraid of - some kind of Nixon in China moment on health care.

"That's right, taxes are just like the Holocaust." - Daryl McCullough

"Cigarette taxes affect the poor"

Yeah, and in Oregon, there is an initiative named Prop 50 which will allow the state constitution to be changed so cigarette taxes may be used to pay for medical costs. Of course, the anti-50 folks run ads showing a "typical average couple" concerned that "horror of taxes", someone might be a'messin with our beloved Constitution.

The anti-ads are heavily funded by some fellows in Far Eastern Oregon, whose sole concern is for the poor citizens - A bunch of good bleeding heart libs, who care soooooo much about the poor - They live in that liberal bastion of Oregon, named North Carolina - Fellows named Reynolds and such. Smoke, smoke that cigarette, boys and shed a tear for the underprivileged.

Actually, it kinda did. No, as jpe pointed out in a quite lucid way, the tax is calculated based on the nature of the income. The IRS could challenge that characterization unless the code permits it and Reid seems to think it would take legislation to make the IRS take a stand against capital gain treatment.

Oh, and thanks for, once again, doing the dance to avoid answering the question posed as to what you think is "fair".

We will need to means test entitlements soon (it's inevitable) Inevitable? You don't get Social Security payments, I take it? Above certain income levels, taxes are owed on SS payments. I think that qualifies as a means test.

Funny thing, eggie, old chap, is that in posting that rip off and misuse of Rev Martin Niemoeller's famous quote, there were no typos. See, just reprint salacious garbage of another wingnut, and your useage of English might get you a passing grade, for once.

That's a no-brainer

The Democratic roll-over on FISA shows that they have no brains. The only thing they have going for them is that they are not Republicans.

PR, that's a different "Brian". The wingnut "brian" never caps his name.

Nor, does he ever exceed the limited cap on his brain.

Inevitable? You don't get Social Security payments, I take it? Above certain income levels, taxes are owed on SS payments. I think that qualifies as a means test.

"Above certain income levels" is what, exactly? What are you trying to say without being completely forthcoming?

Currently, all earnings up to $90,000 are taxed at 12.4% to fund Social Security. Everything earned over and above this cap is completely exempt from Social Security taxes. But that same person can then retire and collect full Social Security benefits.

If you don't need it, you don't get it. And make the cap go away. If you're making over 90K a year, and if you started paying that 12.4% into the system, that would go a long way towards making Social Security solvent well into the future.

But the wingnuts don't want to deal with that issue either. Neither party wants to deal with means testing and removing that 90K cap.

That's why we're in the situation we're in.

Stupid is stupid, regardless of which "(b)Brian" it is.

Man, does the nitpicky bullshit ever stop?

It it just me or is Obama's energy policy pretty awful?

Obama's energy plan for its mandatory cap-and-trade system - and he is FOR IT.

Jeebus, he lost me at the word "cap". So I'm wonder if Dems represent a change from Bush any more or not. Washington Dems are showing us that they really like what Bush is doing - and plan to continue, just like Bush did it, as if the white collar lacky stuff was all the rage.

Congressional Dems want be exactly like Bush.

Oh yeah, and this: Iraqi report calls for end to US-Blackwater contracts and this Iraq Demands $136 Million for Families in Blackwater Shooting so the Bushies can either pay up or get out - want is it going to be???

I guess Rice's little cheap band-aid talk about making contractorss "more accountable" just wasn't enough - yeah right - doesn't Bushies lie all the time, of course they do. It looks to me like Bushie and his all private shoot-em war profiteers are on the verge of the being told to leave the country - to take the US greedy Hydrocarbon and law and stuff it.

"removing that 90K cap"

Alert - Here comes Norman Rogers writing about how the removal will put his massage parlor empire out of business.

Yeah, it's a damn shame that the gvmt throws the taxes they collect into a furnace instead of directing them back into the economy....

You mean Iraq?

Reid seems to think it would take legislation to make the IRS take a stand against capital gain treatment.

Actually, I think the IRS could challenge and prevail on the claim that carried interest is ordinary income (again, see IRC 707(a) & (c)). The question is whether it will do that. Since we don't know whether the service, which is realllly short on resources at the moment, will do that, the best way to change it is to make the code clearer.

The Turd Paul - do you have a goddamned point or are you just going to jump up and down like a yip yip dog?

pale Rider, hmmm, how to say this? PR, if you read the words you quote, you would perceive that it isn't about paying SS payroll taxes, it's a comment about people who receive SS benefits.

Depending on age, above income thresholds outlined by the SS administration, more income reduces the SS benefit payable. Which, if you close your eyes and concentrate really hard, amounts to a means test.

The max salary level is $97,500 this year, I think; if you read the SS Trustees report, you could figure out how much additional tax could be available if the cap were removed. As of the 2007 report, the SS payroll tax covers more than 83% of total payroll.

"Cigarette taxes affect the poor"

That sounds like Pat Buchanan's rif about SCHIP and increasing the federal cigarette tax, and how it was unfair for "hardworking cigarette smokers who just want to enjoy their cigarettes" to pay more tax.

What if those smokers were welfare recipients, Pat? God, these guys are shameless.

One of the uses of asking questions is that, yanno, sometimes people have actually thought about the answers. Sometimes that's actually WHY people ask questions, to get answers. (I realize this leaves Pale outa the discussion, but I can't help that.)

TJM asks "What do you think is a fair share since you conclude that the current tax scheme isn't fair?"

Correct me if I'm wrong, but I think he's got Pale's false premise buried in his question, that what people get from the government means "if someone receives government assistance", like TANF and such.

Nope.

Take Rupert Murdoch, just to pick a new American at random. First, the guy is a media mogul from Australia. He has benefited ENORMOUSLY from the sacrifice in blood and treasure the United States made to save Australia from the Greater East Asia Co-Prosperity Sphere, since the Empire would have been distinctly unlikely to allow, much less foster, Murdoch's profits off free speech.

Second, his media holdings in Britain (WW2 and the Cold War, 'nuff said), and the US are also built on the foundations of American liberty and prosperity.

So I think the Notion that taxing rich folks at a higher rate than working stiffs does not depend on Pale's delusion that only people on welfare "get" something from the US government.

As TJM observes, I know a little about the way legislative happens. That's why I raise the argument that it is FAIR, it is a PRICE that wealthy capitalist can be legitimately required to pay, that their taxes are higher than the rest of us. Start from THAT premise, and I'd expect Congress to come up with a better system than the one we've got: folks who make money off WORK are different than folks who make money off MONEY, much less (as hedge fund managers do), the very few people who make money off OTHER people's money, which is only possible cuz of the folks at the bottom of the pyramid who hold the rest of it up.

It's not jealousy, it's not class warfare, it's payback for all the poor bastards who died to protect their wealth from folks who would steal it.

So how come progressives don't talk thus plainly?

Americanist, this is actually a lot easier than you're making it out to be. The carried interest that hedge managers get is fee-for-service; like any other payment for service, it should be taxed at ordinary income rates.

Simple as that.

You mean Iraq?

Touche.

if you read the words you quote, you would perceive that it isn't about paying SS payroll taxes, it's a comment about people who receive SS benefits.

Hence, my statement--remove the cap on what people put in. Hence, my statement--if you don't need it, you don't get it, affecting what people take out. To make Social Security more solvent, you need to put more in, and take less out. It's a basic concept foreign to anyone shilling for the billionaires. But anyone can figure out that if you put more in, take less out, you'll go a long ways towards eliminating any funding gaps. Taking it all out, putting less in--voodoo economics? Is that what it is? Cut taxes to raise revenue? Are you selling us that pantload?

I fully support means testing. But if you want to increase the funds that go into Social Security, you have to start collecting more. I don't think it's unreasonable to eliminate that cap. Whatever gets paid out should be based on what people need to stay above the poverty line; so if you want to call that means testing, call it means testing. A situation where a retiree is not broke, is not living below the poverty line, has access to drug benefits and health care, and can go from one benefit check to the next without having to choose between food or prescription medicine ought to be the goal. Everything else is just rich people trying to perpetrate their sham--calling it all confiscatory taxes and all that other bullshit.

Depending on age, above income thresholds outlined by the SS administration, more income reduces the SS benefit payable. Which, if you close your eyes and concentrate really hard, amounts to a means test.

Yes--but does it go far enough?

The max salary level is $97,500 this year, I think; if you read the SS Trustees report, you could figure out how much additional tax could be available if the cap were removed. As of the 2007 report, the SS payroll tax covers more than 83% of total payroll.

No, you can handle that. As for me, I think we should means test entitlements, we should remove the cap, and we should ensure that there is a Social Security fund in order to keep the elderly and the disabled out of poverty. If you don't need it, you don't get it. If that's not clear enough, maybe we can robustly debate schedule c on page 61 of the green book and thusly determine a more forthcoming level of reverse taxation based on gross income, not net income.

Or not.

Americanist obviously has that stick buried in his ass again--I'm not interested in how it got put there.

I think we should tax the living shit out of Rupert Murdoch.

I think your statement:

I've always thought we should tax people according to what they get from the government.

Is a thinly veiled elitist swipe against people who actually do get something from their government--the elderly, the disabled, and children who lose a parent get something from the government. So when you say "I've always thought we should tax people according to what they get from the government" then what you're saying is that anyone who gets something from the government, regardless if they're Rupert Murdoch or the elderly, the disabled and children who lose a parent, you think they should ALL pay for what they get from the government.

You said:

"I've always thought we should tax people according to what they get from the government."

And that encompasses people who are elderly, the disabled, and children who have lost a parent.

Hence, my explanation to you is:

Take the stick out of your ass. You are an idiot.

This has been another edition of simple answers to the confused rhetoric of the criminally insane.

Correct me if I'm wrong, but I think he's got Pale's false premise buried in his question, that what people get from the government means "if someone receives government assistance", like TANF and such.

OK, I'll correct you. You're wrong. With over 30 years of corporate finance experience, I'm not the least bit confused as to what constitutes getting something from the government.

Sheesh, just answer the question if you want or don't answer, your choice. But stop delivering lectures based on unsupported assumptions.

By the way, your "answer" to what is fair is just more persiflage.

Democrats and their spooks.

I dunno what Reid is thinking.

If it was about LOGIC, recognizing that fee for service means what it says would solve the problem: tax it as income.

But this is POLITICS.

Read Weisman's article in the WashPost.

There are all sorts of arguments in favor of low taxes.

Perhaps; no one is in favor of generically "high taxes" on their own. OTOH, your habit of leading into any criticism by gratuitously validating a bunch of right-wing positions, or lumping together very different right-wing and left-wing positions in false equivalencies, is as inappropriate here as it usually is, and does nothing to reinforce any point you might be making.

Supply siders say that high marginal income tax rates reduce people's incentive to work.

No doubt they do, at the point at which they are applied. OTOH, this isn't really an argument against progressively higher marginal tax rates, indeed, its one means by which they acheive their fundamental purpose.

Liberals complain that payroll taxes are regressive.

Which they are; but this isn't an argument in favor of "low taxes", its an argument against a system in which payroll taxes are relied on heavily in preference to other taxes on income.

Capital gains taxes inhibit investment. Taxes on dividends are double taxation. Cigarette taxes punish the poor.

Strange that you abandon, for these last three, the "Foo argues bar" construction. But there's no evidence for the first, the second isn't true any more than, say, income tax in general is "double" (or potentially infinite-multiple) taxation (I pay personal income tax on my income, from which I don't get to deduct, say, the cost of maid service; the maid service I hire either pays corporate [or, depending on their business structure, personal] income tax or, to the extent it spends the money on deductible business expenses, someone downstream pays corporate or personal income tax on it.)

And, even making the false assumption that taxing an activity is inherently punitive, cigarette taxes "punish" smokers, not the poor. Sure, like any consumption tax, they are regressive, but plenty of poor people don't smoke.

And, of course, again, none of these are arguments in favor of "low taxes" in any generic sense, they are all arguments against particular taxes.

But allowing management fees for hedge funds to be taxed at capital gains rates (15%) instead of the normal income tax rate (35%)? That's a no-brainer.

The usual use of "that's a no-brainer" means that thing being discussed is on obviously good idea that no one would argue against. Your use of it here in, apparently, the exact opposite sense is a bit bizarre.

All the fast talk in the world can't produce even a colorable argument in favor of letting this insane loophole continue, and no one but the hackiest of Grover Norquist's tax jihad hacks should be willing to defend it.

How does this differ from mostof the arguments against progressive income tax, corporate taxation, taxing capital gains generally as income, etc.? Indeed, once you accept the premise that capital income "deserves" a lower tax rate, you've made it easy to argue that capital-related income of various classes should be taxed as if it was capital income (and thus at lower rates) rather than "regular" income.

Your focus on the little picture—the application of the preferential capital gains rate to this particular bit of capital related income—obscures the root of the problem (which you implicitly validate in your introduction), which is simply the acceptance of the misguided idea that capital income deserves special tax status in general.

For our Dear Mr Drum
Colourable arguments?

Well, as you wish, but at least get your information right. The arty is about Private Equity not Hedge Funds. They are different beasts with fundamentally different underlying structures.

Nor is Carried Interest, the actual subject of the tax article, fees. Management fees are yearly, and paid on managed capital. Generally for private equity in the 2% range, typically that covers operating costs.

Carried Interest is, generally but depending on the specific structure, a share of ... the capital gains of the fund received:
(i) After all paid in capital of the fund is repaid to investors (i.e. paid in money is paid back, no capital gains);
(ii) a "hurdle" profit rate (capital gains, first tranche if you will) is paid to the investors. Typically in the high single digits IRR, say 8%

At this point, only after base capital plus the hurdle rate have been paid out to investors, the capital gains from realized investments sold (IPO, sale to strategic investors, what have you) then flip to a higher percentage to the private equity management fund managers. From this point you may get a say 20-80 split on returns (or whatever has been negotiated), those returns again being capital gains.

The key fact here is the carried interest / capital gains discussed in the article re US taxation are not fees, are only received on realising actual returns and... well are in fact capital gains.

Ah yes, and this is typically on a fixed life investment vehicle, with (typically) a 2-5 year initial investment life cycle and a 2-5 disinvestment life cycle for a maximum lifespan of approx 10 years. In which time the investors have their money locked in - can't pull it out mates, no Portfolio/Mutual Fund or Hedgie quarterly flows. Ten years lock down (although in PE in the US they seem to be running shorter life spans nowadays, more like 6-7).

I would add that Hedge Funds are rather more fees intensive - up front fees as well as share of profits, but don't have the locked in money aspect.

So, as far as I can tell you got not one fact right in your "non-colourable" argument. Ah well, I'm encouraged to see the Left remains financially illiterate.

At the very least, my dear Drum, I would invite you to deepen your understanding of the actual issues at hand before talking fees and Hedge Funds.

"No, you can handle that. As for me, I think we should means test entitlements, we should remove the cap, and we should ensure that there is a Social Security fund in order to keep the elderly and the disabled out of poverty. If you don't need it, you don't get it. If that's not clear enough, maybe we can robustly debate schedule c on page 61 of the green book and thusly determine a more forthcoming level of reverse taxation based on gross income, not net income."

I basically agree with all of that. As an aside, I'm baffled by the "put SS money in the market" arguments. Every financial planning book ever written -- lots of them by Republicans I presume -- basically espouse diversification. SS is a tremendous diversification tool. The return may be "low" by current market standards, but it's the least risky retirement investment possible.

I could probably be convinced to drop the SS program altogether if I actually got to keep that money. But that's not the Republican plan -- what they want is you to have to pay SS tax and then to invest that money in the market through a set of private managers they allow you to use. That's not keeping your own money -- that's a sop to financial services industry. And the fees private managers will charge would surely reduce the real return significantly. What a scam.

If you start from a false premise, you come to an erroneous conclusion.

Capital gains taxes, while being of great benefit to the very wealthy, also affect the working people of this country who invest in stocks and bonds and real estate to increase their "nest egg" for retirement.

That's not an argument for or against high or low taxes, just a statement that this particular tax is NOT just a tax on billionaires' investments. It's a tax on a lot of small investors' investments, too.

Pale, you're delusional: "a thinly veiled elitist swipe against people who actually do get something from their government" - WTF?

Like I said, I figure that a guy who makes a mint off America's free market economy GETS a lot from the US government. Going too fast for you?

And since TJM tell us he is "not the least bit confused as to what constitutes getting something from the government", let's test it: do you agree?

Capital gains taxes, while being of great benefit to the very wealthy, also affect the working people of this country who invest in stocks and bonds and real estate to increase their "nest egg" for retirement.

Yes, the preferential treatment of capital income necessitates higher taxes on "regular" income (whether through payroll taxes or income taxes or both), which certainly "affects" the working people of this country, whether or not they invest in stocks and bonds and real estate to build a retirement nest egg. One of the principal ways it affects them is to rob them of opportunity to invest in stocks, bonds, real estate, etc.

That's not an argument for or against high or low taxes, just a statement that this particular tax is NOT just a tax on billionaires' investments. It's a tax on a lot of small investors' investments, too.

"Small investors", pretty much by definition, make most of their income from sources taxed as regular income rather than capital gains. So rebalancing the tax system to reduce the preferential treatment of capital gains in a manner which is revenue-neutral overall would benefit, not harm, such small investors.

The key fact here is the carried interest / capital gains discussed in the article re US taxation are ...in fact capital gains.

Nah, it's still fee for service, and should be taxed as ordinary income. We give cap gains because property is at risk; a manager has no property at risk.

We give cap gains because property is at risk;

We give capital income preferential treatment because it benefits the wealthy. A worker who invests his labor in an enterprise with the hope of future gain (even when he has an employment contract, as its rather unusual for wages to paid for a term in advance into an escrow account, and insolvency of employers does happen and leave employees out in the cold) takes a risk just as much as someone who invests financial capital does. We don't give capital income preferential treatment because of risk, that's a transparently false rationalization used to defend the continued preference. We give capital income preferential treatment because the people who derive most of their income from capital are personally favored by the people making policy decisions in Washington.

Regarding the actual factual issues
And amplifying my corrective note supra, likely the key issue for the US officials tax legislation committe is the emperical observation that in Venture Capital (a subset of private equity) funds, Carried Interest is in large part the driving motor of the industry.

Certainly the giant buy out funds (i) can probably be thought to be profitable off of fees, given size of funds managed, (ii) probably could afford the strange re-writing of capital gains as income due to economic illiteracy on the part of ill-informed left populists.

However, the venture industry, where funds are usually smallish, and up-front costs generally eat up fees, carried interest is the incentive to put capital at risk, and for the managers to roll the dice on high risk, innovative investments (not just, mind you in Silicon Valley, globally venture capital is not just IT industry, but agribiz and other areas although the focus is on "disruptive innovation." Doing more, better). Tax their capital gains at income rates and you kill the Innovation Cow.

Of course if America wishes to regress further, feel free. I suspect I would personally profit from the capital flight.

(And yes, I do work in the industry, but not being in the US this is merely theoretical interest, well except the mixed pleasure and profit in seeing you blow off your own toes with a tax shotgun)

Like I said, I figure that a guy who makes a mint off America's free market economy GETS a lot from the US government. Going too fast for you?

Yes, I make a mint and NO--I don't pay enough in taxes. Simple truth meet cold hard honest fact. And why are you jumping to the defense of the indefensible when you can't even defend what you said? No, that is not even remotely "like" what you said and, because that stick buried in your ass has a pumpkin full of stupid shit on the end of it, you're still not able to come to grips with the insanity of what you actually said.

What you actually said was:

"I've always thought we should tax people according to what they get from the government."

And while your premise is that you only meant one particular billionaire who, I believe, is an Australian citizen and doesn't pay US taxes (his media properties are subject to some taxation in this country based on the property they own, etc.), also known as "Rupert Murdoch," I called you on the inherent stupidity of saying:

"I've always thought we should tax people according to what they get from the government."

Because what you are also saying is that the elderly, the disabled, and children who have lost a parent should be taxed because--and I'm quoting you here, "I've always thought we should tax people according to what they get from the government."

So--for the tenth or eleventh time, because you can barely read and you have no skills at deducing things, if you say:

"I've always thought we should tax people according to what they get from the government."

Then you ARE talking about people who "GET" something from the government and that "IS" a thinly veiled elitist swipe against anyone who gets something from "THE GOVERNMENT" because you're implying that they're getting some benefit they don't deserve because, after all, they're no different from "RUPERT MURDOCH" because they are someone who is "GETTING" something from "THE GOVERNMENT."

And since TJM tell us he is "not the least bit confused as to what constitutes getting something from the government", let's test it: do you agree?

TJM is dishonestly making an argument in favor of allowing people who don't need government entitlement benefits to continue getting their benefits to the detriment of the overall fiscal health of a program that had one simple goal when it was established, and that is--to provide a safety net for the elderly. It was expanded to include the disabled and children who lose a parent, but what we need to do is have a grown-up discussion on means testing entitlements and ensuring that we have a safety net for people. The benefits of giving Social Security to people to keep them above the poverty line are well documented.

Hence, this entire discussion about illusory schemes and voodoo economics serves one purpose--to keep people who CAN pay FROM paying.

Stick, Americanists' ass. Americanists' ass, stick.

Remove when ready.

I'd be curious what The Lounsbury thinks of the question 'what constitutes getting from the govt", also. (Gotta love a "the" monicker -- like "the O'Malley", for anybody of a certain age from Brooklyn.)

I suppose, this being a republic, the Congress can more or less tax anything it wants as whatever it chooses to call it -- tax a dog's tail as a leg, whether it can walk on it or not.

But most tax debates talk about economic impact more than 'fairness', in my experience. I remember vividly when Dole tried to impose luxury tax on yachts, and BOATUS promptly made the issue, rightly, about the working stiffs who actually build and service the yachts. Sell fewer of 'em, you hurt working people more than the (little) extra money you shake out of rich guys who can still afford the luxury tax to buy one.

I don't think that logic applies to taxing fund manager fees as income rather than capital gains: does anybody?

Since I don't breathe this rare air, The, explain: isn't the manager's fee like ribbah, something that they get regardless of how well or poorly the fund does? So isn't it ACTUALLY "income", since it isn't their money at risk? (I realize those are two different propositions, so parse away.)

(sigh) Pale, I can't teach you to read, e.g., to observe that an "example" is one instance of many, or that when I talk about what I mean, which is what my words say, I speak with a bit more authority on my meaning that an illiterate like yourself.

So I'm only gonna make the following observation: Rupert Murdoch has been a US citizen for more than a decade, and was a legal permanent resident before that. As a legal permanent resident, his worldwide income was subject to US taxation.

Do strive to acquire some knowledge before you form, much less express what you doubtless consider a "thought".

In the meantime, perhaps you could contemplate apologizing to me publicly, not for being stooopid (as we've all come to expect), nor for mis-stating and mis-understanding what I've said so egregiously (there, there), but for getting something so simple, so clearly WRONG.

Do tell: am I right, that Murdoch is a US citizen? (He naturally shortly before acquiring a TV station, as required by law.)

Or are you, that he is not?

driving motor of the industry

Tax their capital gains at income rates and you kill the Innovation Cow.

seeing you blow off your own toes with a tax shotgun

Ladies and gentlemen, I give you the new Thomas Friedman.

I suppose, this being a republic, the Congress can more or less tax anything it wants as whatever it chooses to call it

More to the point, we tax based on the substance of the transaction, not the formal structure or the source of the income. That's tax policy 101, and it conclusively augurs for taxing carried income as ordinary income.

I haven't any reaction or interest in the detials of American domestic tax fairness squabbling Americanist so frankly I am not sure what you're refering to other than some comments I did not read.

As to your fundamental question:
Since I don't breathe this rare air, The, explain: isn't the manager's fee like ribbah, something that they get regardless of how well or poorly the fund does? So isn't it ACTUALLY "income", since it isn't their money at risk? (I realize those are two different propositions, so parse away.)

For Private Equity / Venture Capital [again PE/VC funds are absolutely different beasts than Hedge Funds, despite popular confusion]:
Compensation to the Fund Manager comes in two forms
(i) Management Fees: This is a percent fee (again typically 1-3%, avg observed is 2%, but some high risk VC funds w star managers get 3) off of managed funds. That is, the amount of capital raised and locked in as irrevocable commitments to the fund for its life (again typically 10 yrs max). That's income, and as far as I always understood I think in the US it is treated as such. In most places it is. One gets it no matter what, and it is to cover expenses running the fund (investing, managing invested companies, etc).
(ii) Carried Interest which is the share of Capital Gains from realised investments after you exceed the hurdle rate. If you don't make your hurdle rate, you don't get no moola. Game over.

As historically, the typical VC or small scale PE fund pays lower salaries than the assured income of say an investment bank, talent has been attracted by the lure of hitting it big if and when you do really great with a fund.

Do badly, get a new career.

Since I don't breathe this rare air,

Oh, so you admit you have a "class envy" thing going here. That means you're "open minded" and "fair" about these issues, doesn't it? I'm thinking that "the Americanist" is a broke, unemployable jackass living on handouts and pawned stereo equipment who has twenty minute arguments in convenience stores over whether or not a chicken burrito should be taxed at the same rate as a pack of rolling papers.

Of course if America wishes to regress further, feel free. I suspect I would personally profit from the capital flight.

That's another one of those principles that doesn't mean anything and is used to keep people confused about the issues. We already have massive capital flight--it's called tax havens. We already have massive default on tax obligations--it's called unpaid corporate taxes. We already have people using every accounting trick in the book to defraud the IRS--it's called hiring an accountant with no morals.

However, there's a lot of money to be made simply by playing by the rules. In our system, you should be able to make a great living through your skills and talents. Being rich is not the sin. Not paying your fair share for the benefits you derive from living in a country where your right to be free from having your property taken away from you without due process is the sin.

And this argument is about people who want to game the system and save piddly-assed amounts of money. It's about unrestricted greed, and inherent in capitalism we already have restrictions on greed. Like it or not, the reality of capitalism is that, at some point, there is a correction when the whole system gets out of whack. A hundred years ago, they did what we need to do now, and that's smack down the robber barons.

the new Thomas Friedman.

Give me a bloody break, you stupid whanker. Friedman is an idiot journo who knows fuck all about what he writes about, whether MENA or globalisation or whatever.

Well, in any case a bunch of wooley Left whankers knee-jerking about how to soak Capital is terribly predictable and I don't think there is any upside in going into any further explanation of how your man Drum bollixed up both his comment and his entire understanding of what he was commenting on.

TJM is dishonestly making an argument in favor of allowing people who don't need government entitlement benefits to continue getting their benefits

I said no such thing. I responded to your comment about the inevitability of a means test by noting there is already a form of means test. That's all. Your deduction that somehow this translates into a "dishonest argument" is the result of your fervid imaginings and the paranoia you rightly feel about your reading comprehension.

SS is not a program at risk as even Greenspan has acknowledged. At most, under the conservative assumptions of the trustees, 2% of GDP would cover all the existing actuarial shortfall.

So, your inept imaginings have put you in your usual position of looking stupid. Well done.

This really boggles:
More to the point, we tax based on the substance of the transaction, not the formal structure or the source of the income. That's tax policy 101, and it conclusively augurs for taxing carried income as ordinary income

As carried interest, not carried income you illiterate git is a share of capital gains realised when ... well, capital gains are realised (that is if, and only if capital gains are in fact realised off of the portfolio and if it exceeds a risk or hurdle rate to the other investors), the substance of the transaction is in fact not ordinary income.

Good lord, are you people that dense?

(smile) Well, Pale, I CAN help a little with your literacy problem -- I asked you if Murdoch is a US citizen, or not?

You said he isn't. I said he is. Thus, one of is wrong, and one is right.

(smiling sweetly) Which?

An item of substance for the Americanist:

Most fund managers are co-invested into the funds which they are managing, so they have "skin in the game" as the saying goes. I think that's a basketball expression, but no matter everyone understands it. That is, despite loosey journo talk, PE and VC managers typically have some proportion of their own money in the fund, on the same terms as that of the other investors, although they are also typically rather minority.

The whole issue is about alignment of interest. The investors want to know that their capital gains being worked for.

The percentage of capital gains allocated after passing hurdle is supposed to be that extra incentive to ensure the minority manager works hard for everyone to ensure outsized profits. The manager has to beat the hurdle (8%) and then is granted a larger share of the capital gains poor after hurdle.

One can think of it as preference shares - in fact one could structure a PE/VC fund on a shares basis, with the manager being allocated preference shares that contain an option for higher divident of realised capital gains if a certain rate of return is exceeded for all parties.

That is more or less the structure in a nut shell.

Poor Americanist--

He got one right!

Yes, Rupert Murdoch is a Australian who became a naturalized American Citizen.

However, more importantly:

RUPERT LAID BARE
THE ECONOMIST BUSINESS
March 20th 1999
Newscorp Investments is Rupert Murdoch's main British holding company. Although the group's profits over the past 11 years add up to £1.4 billion ($2.1 billion), it has paid no net British corporation tax.

RUPERT MURDOCH is an exceptional businessman in many ways - in the risks he has taken to build News Corporation, in the global reach of his empire, in the way he has changed the rules of the game for other media companies. But one of his most remarkable achievements is his tax bill. In keeping with his anti-statist philosophy, Mr Murdoch hands very little of his profits to governments.

In the four years to June 30th last year, News Corporation and its subsidiaries paid only A$325m ($238m) in corporate taxes worldwide. In the same period, its consolidated pre-tax profits were A$5.4 billion. So News Corporation has paid an effective tax rate of only around 6%. By comparison, Disney, one of the world's other media empires, paid 31%. Basic corporate-tax rates in Australia, America and Britain, the three main countries in which News Corporation operates, are 36%, 35% and 30% respectively. [as of 1999]

Finding out the specifics of News Corporation's tax affairs is difficult because of the company's complex structure. In its latest accounts, the group lists roughly 800 subsidiaries, including some 60 incorporated in such tax havens as the Cayman Islands, Bermuda, the Netherlands Antilles and the British Virgin Islands, where the secrecy laws are as attractive as the climate.

Hence, the attractiveness of being, as you correctly pointed out, a "naturalized" American citizen.

Something wrong with this scenario? Can you now see that we need to smack these robber barons?

I got a cousin who owns his own island with the dough he made off this stuff. I bought him a couple beers once and tried my damndest to understand what he did, and the closest I could get was that he buys and sells debt denominated in different currencies -- when he tried to explain derivatives, I finally realized that Powerball aside, I am unlikely to own the island next door.

So lemme break this down, The: a bunch of folks give you and me a billion to manage for 'em. You're the boss, I'm the other guy. THEY make their money off of how much money we can use the billion to make. Right?

YOU make your money by taking a slice of what the billion makes every year, out of which you pay me. Since you and me are such whizzes at making money with other people's money, you're fine with making only a slice of what IT makes, cuz the #s are so big.

But to get somebody with my vast talent for finance, you have to offer me more than a piece of your slice: the more money I make with the billion, the more I get ON TOP OF the salary that you pay me from the slice you take so long as the billion makes any money at all.

Right?

If the billion doesn't make ANY money, you get a new line of work.

If the billion makes only a little -- the slice that you take -- then you fire me.

It's your understanding that the US taxes the FIRST part of the money I make as income (my piece of your slice), but the "carried interest" is the second part -- and properly treated as capital gains?

IF that's true (this is rare air for me), then I think the unaddressed part of the argument is that even though I might gain from it, it's not MY capital -- so it should NOT be treated as my "capital gains", but as income -- incentive income, to be sure, but no different from bonus pay.

Right?

And I missed this previosly:
ah, it's still fee for service, and should be taxed as ordinary income. We give cap gains because property is at risk; a manager has no property at risk.

False: See my note above, PE & VC managers, unlike Hedge Funds frequently, generally do have "skin in the game", that is invested capital. Most LPs - investors in VC and PE funds require the manager to put capital at risk to further align incentives.

Well, regardless, I welcome your upcoming capital flight. More money for us.

Well, regardless, I welcome your upcoming capital flight. More money for us.

Where? Great Britain? With Gordon Brown in charge now?

What are you injecting into your veins?

As carried interest, not carried income you illiterate git is a share of capital gains realised when ... well, capital gains are realised

Carried interest is only a fee that's contractually tied to return on capital. That contractual arrangement doesn't thereby magically transorm what is, essentially, fee-for-service into property. Again, we tax the transaction, not the source of the income.

"skin in the game" -- which I think is a gambler's term, it ain't a spectator sport -- gets closer to Pale's garbling of my point, which he never got in teh first place: this sorta high stakes is only possible before the US is the globe's guarantor of liberty and principal engine of prosperity.

But that said, where The winds up (I think) is that as his minion, taking a piece of his slice and beavering away to turn a billion into two, I don't simply get an extra chunk of cash if I succeed.

YOU get your slice of the new billion I labored to make outa the first billion, cuz you're the Boss.

For ME to get my 'bonus pay' piece of that new billion, I have to ALSO put skin in the game: but I don't I get paid LOTS more "capital gains", than I actually invested capital?

Ain't that the essence of it?

Everyone that works has skin in the game. The notion of "sweat equity" is preposterous on its face.

At any rate, an ideal analog is a real estate broker that gets a commission of %x percent on the sale price. Normally, that commission is ordinary income, and that tracks common sense: the broker is providing a service, and is getting a fee for it.

If the seller and broker form an LLC, though, and the broker is given a profit interest but contributes no capital to the partnership, that ordinary income from the commission is changed from ordinary income to capital gains.

Nothing about the transaction has changed; only the legal structure has changed. And that's clearly gaming the system.

Responding to the Americanist:

First, I am no expert in the US tax system by nature or inclination.

So, then, second, to parse your note:

So lemme break this down, The: a bunch of folks give you and me a billion to manage for 'em. You're the boss, I'm the other guy. THEY make their money off of how much money we can use the billion to make. Right?

Well, more like:
(i) The Lounsbury Management comprising for some unknown reason of myself and you, no doubt due to my kind nature, proposes a Fund to invest in alternative energy companies. Unlisted, up and coming Alt Energy Companies.
(ii) The Lounsbury Management seeds the fund with 1 million Euro.
(iii) The Lounsbury Management gets commitments from a group of Qualified Investors (that is grown ups who can take the risk - institutional investors, very wealthy families, etc) for up to 5 million Euro each, for a total of 75 million Euro, of which parties have invested between 1 and 5 million Euro. This money is revocably committed for the lifespan of the Fund, ten years.
(iv) The Lounsbury Management contracts to receive a 2% annual management fee off of committed funds for the Investment Period [years 1-5], and a 1% annual management fee from invested capital (or value of invested capital rather) afterwards [years 5-10].
(v) The Lounsbury Management uses that fee to pay staff expenses [salary, etc], office expenses and investment expenses. Staff of course includes say 5-10.
(vi) The Lounsbury Management also contracted on the Fund to recieve after a 10% hurdle rate, a 20% carry, off of total net portfolio. Meaning, once funds are invested, the carry is not realised until the Fund is liquidated (sometime from year 6 to 10), all original capital is returned to the investors, and a 10 percent return is ensured to the original investors above their paid in capital, from capital gains [if any] before The Lounsbury Management Team collectively see capital gains - the carry.

YOU make your money by taking a slice of what the billion makes every year, out of which you pay me. Since you and me are such whizzes at making money with other people's money, you're fine with making only a slice of what IT makes, cuz the #s are so big.

The yearly fees are the management fees. 2% of capital, during investment period, 1% of invested capital after.

But to get somebody with my vast talent for finance, you have to offer me more than a piece of your slice: the more money I make with the billion, the more I get ON TOP OF the salary that you pay me from the slice you take so long as the billion makes any money at all.

No, you get fucking nothing on top of salary until The Lounsbury Management firm realizes capital gains.

The manager (management company first realises capital gains, via the carried interest), then its members get paid. Of course at that point its income.

It's your understanding that the US taxes the FIRST part of the money I make as income (my piece of your slice), but the "carried interest" is the second part -- and properly treated as capital gains?

The Carried Interest comes off of realising the SALE of companies in the portfolio - that is, capital gains - and is not a yearly income event.

It is an investment event.

Carried interest is not paid yearly. It is paid on wind up of fund. PE and VC funds do not "trade" equity, they invest in private, unlisted firms. The money is locked up until exit is achieved.

As I see you are collectively insensitive to facts, and this is of but theoretical interest to me (except insofar as the US eventually managed to drive more venture investment overseas into my arms), voila....

But the hostility to sweat equity (although again of course VC funds typically do have actual capital in the game, not that facts are going to get in the way of the collective howling of the capital phobic Left), quite bizarre. I value sweat equity all the time, from entrepeneurs.

Who of course experience capital gains off of the equity granted to them by, well, me as a means of valuing their non-cash contribution to starting a firm.

Of course if this sweat equity granted to entrepeneurs become "fees for services" and ordinary income to the American tax man, why I see whole new scope of capital flight.

Brilliant, positively brilliant. Will certainly make India a more attractive destination.

Here's the law: If you have a company, and you can't explain, in one sentence, what the fuck it does, it's illegal!"

-Lewis Black

Where? Great Britain?

No, my dear fellow, I am MENA fellow. But Brown isn't going to do anything to discourage London's hub role.

I am MENA fellow.

Don't run afoul of anyone. Somehow I think the term "rule of law" is a little more quaint there than if you were at home.

But I'm sure a smart fellow like you knows the way home when the heat gets turned up.

It's nice that you're optimistic about Gordon Brown, but I think he's going to start doing all he can to distance himself from Tony Blair and the United States, and that means aligning with who, exactly? How long do you think that hub is going to last?

I see whole new scope of capital flight.

That's usually what Innovation Cows do after being blasted by Tax Shotguns.

They take flight.

If The is still following this, you tripped over the horizon, I think. Three distinct points:

1) Lots of folks want to raise capital gains taxes, and some want to eliminate 'em altogether. Different argument, even though it's similar. Capital flight is largely a liquidity or cap gains argument.

2) You parsed it more elegantly, and surely with more accuracy than I did, but I think my point stands: your Minion (me), gets LOTS more in benefits from the profits than I invested with my own money.

For ease of arithmetic, in dollars: the The fund starts with a billion. My base salary is, say, 500k, and to have skin in the game I scrimp and buy Hydrox instead of Oreos, so I can invest half my salary: a quarter million of the billion is mine own. Inspired, no doubt, by your brilliance and suavity, I double the value of the fund to TWO billion in a year. The Qualified folks who invested in chunks of $50 and $100 million are pleased, since they got 100% return on their investment in a year.

And I get, say, $10 million. It's partly cuz I had skin in the game, but a 100% return on a quarter million is a quarter million: the OTHER $9,750,000 is "income", and should be taxed as such.

I think that's what the argument is about; thanks for helping to clarify it.

BUT -- you tripped. Cuz...

3) Should you and I be competitors, after you played Scrooge to my Cratchit and I abandon you for the greener pastures of Wall Street, taking all I learned about rapaciousness (and new energy) at your knee: there ain't gonna be a bloody NICKEL of capital that leaves the US because I have to pay income taxes on my A-Rod income.

The issue of what I pay in income taxes (as Murdoch, or for that matter Pale) is determined by my CITIZENSHIP, not where I earn the dough. So your argument evaporates, except insofar as you're correcting Kevin on his terms. (which is of course a mitzvah) But it's not relevant.

Cuz it doesn't affect the capital, nor the return on it, a 'tall. If I can double the billion entrusted to you in a year, I will have billions to invest whether I do it in NY, London or Hong Kong -- AND with tat much to invest, I'll quickly have the equity that I can put plenty of skin in the game so I won't need the "carried interest", which would be taxed as income.

So as a tax debate it's the same bullshit "marginal tax rate" argument that's been disproven time and again. You CAN make an argument about invested capital that doesn't become liquid cuz of taxes, thus an obstacle to growth: but the idea that billion dollar funds won't grow as much cuz the manager has to pay A-Rod taxes on his A-Rod income is just nuts.

The issue of what I pay in income taxes (as Murdoch, or for that matter Pale) is determined by my CITIZENSHIP, not where I earn the dough.

No, it'll actually be determined by how extensively your company or companies defrauds the government by using as many tax shelters and loopholes as possible.

It's only legal because of lobbyists. As Mr. Black said earlier--

Here's the law: If you have a company, and you can't explain, in one sentence, what the fuck it does, it's illegal!"

(mildly) You do realize, Pale, that you haven't understood a single sentence of the discussion in the thread for about 70 posts, so nothing that you've, um, added has failed to detract from the sum?

>Isn't this what the Clinton's are all about?

Fined for superfluous use of the possessive. 5 yards and loss of down.

It's just 'Clintons', a simple plural.

“The hedge fund tax loophole is a crystal-clear example of unjustified privilege.” - Paul Krugman

(mildly) You do realize, Pale, that you haven't understood a single sentence of the discussion in the thread for about 70 posts, so nothing that you've, um, added has failed to detract from the sum?

Project much?

Uh-huh. Aren't you the guy who accused me of elitism, cuz I figure zillionaires oughta pay more, and insisted that Murdoch isn't an American?

Facts is facts, Pale. If you acquire one or two at a time, then sloooooowly learn to turn them in your hands, like a kid with alphabet blocks, I'm sure you will eventually be fit for company.

I'm sure you will eventually be fit for company.

Project much?

I'm sure you will eventually be fit for company.

Project much?
Posted by: Pale Rider

Getting out the popcorn...

"No protracted war can fail to endanger the freedom of a democratic country." - Alexis de Tocqueville

(sigh) It ain't about me, dude. I'm not especially interested -- not here, anyway.

The gist was in Has' point, way up: "Carried interest--as in nominal equity contributed by fund managers--taxed at capital gains rates? Seems appropriate."

"Nominal equity" seems a term of art. I noted to The that the guys who make this dough don't actually have THAT much skin in the game -- basically, they put some money in but get "capital gains" rewards that are WAY outta line with their actual investment.

This isn't the kind of tax dodge that Pale is bitching about -- or would be, if Pale could use English to communicate. A guy like Murdoch really DOES have vast amounts of capital, and as I noted to The, arguments about taxing capital are distinct from whether THIS is capital, or income.

I merely noted way up that Murdoch gets a lot more from the US government than he pays in taxes -- sorta like Montana.

Those two points seem to be where Pale became unhinged, but that's not important.

But since we managed to get somebody who actually DID understand this high finance stuff engaged, I'm curious: The, ain't it so that the 'carried interest' you're talking about, based on 'nominal capital', is STILL just plain bonus wages, no matter what you CALL it?

You can call a dog's tail one of his legs, but that doesn't mean he can walk on it.

And the idea that capital will flee the US, or that fund managers will renounce their citizenship if they have to pay 20% more on their income, is just ludicrous -- whcih is why it's worthwhile (for me, anyway) to slog through The's correction of Kevin's mis-use of the terms, to get at the bogus core of the argument.

I may have missed it, but did the Birnbaum actually write that entire story and not mention Chuck Schumer a single time?

same low income tax rate for everyone
same consumption tax rate for everyone

allow more reward on investment risk with the lower income tax rate

allow more flexibility for a person's finances with the consumption tax which is only charged when a person chooses to consume

"They closed the AMT, reinstituted the death tax ... "

I'm not sure what Moira was doing other than stringing together a bunch of tax lingo, but "closing the AMT" would generally reduce taxes, and so one would think egbert would be for it.

As for "they ... reinstituted the death tax ..."
egbert's darlings the ReThuglican Congress provided for instituting the "death tax" when in passed the original Bushit tax "cuts."

Nobody don't have to do nothing, and the estate tax (look it up in the tax code, egbert) will rebloom at $1 million in 2010. Shoulda taken the offer to freeze it at $5 million when they had the chance, but "compromise" is a dirty word to the Republican'ts.

If you're rich you want all the tax breaks coming your way.

To them the government is a fiend and their $400 million yachts with a helicopter pad are more important than you, me, good schools, health care for all, bridges that don't collapse and all that common good stuff.

Sadly, they've come to believe that it's their private greed that makes life for everyone else better.

I know a little bit about the federal tax system, mostly estate a gift taxes.

Generally, if you get something (a partnership share) for nothing of currently equal value, you've gotten a gift, and gift taxes start around 35% and increase rapidly to around 45%.

Gift taxes are paid by the giver, however, not the receiver.

IF the IRS wanted to treat these payments in a different way, it would have quite a few ways to go.

The President appoints the Commissioners of the IRS, who issue the revenue rulings, and the regs and all the other administrative stuff.

Congress probably doesn't need to do anything, unless it wants to enshrine the current tax treatment into the Code. A new President would, however, have to appoint new Commissioners who would want to take this issue on, so I think we'll have to wait until the SECOND Obama Administration, or the SECOND Edwards administration if we want to see this happen.

Whether Reid is bowing to his (and the Presidential candidates big donors) is debatable (and I wouldn't bet against it) but face it, it takes 60 votes in the Senate to do anything, and you will NOT find a ReThuglican who will ever vote for this.

Sadly, they've come to believe that it's their private greed that makes life for everyone else better.

I doubt that many of the hyper-rich really believe that (though some may be that deluded). I think most are aware that that's just a sales pitch they use to get enough of the masses to buy in to the status quo to keep it steady.

Taxing hedge funds at 35%?

Just two words in response: Eddie Lampert.

The sole purpose of preferential treatment of gains from the sale of appreciated assets is selectively shield the owners, generally the wealthiest since that's the group which owns all those assets, from the effects of inflation.

Those who naturally derive the most benefit from asset inflation are, of course, the very ones who are pre-empted from the ill effects.

The question as regards the 'carried interest' deduction is that the managers do not own the underlying assets , therefore what they're being paid is not 'capital gains', so therefore are NOT eligible for capital gains treatment of what is clearly compensation for services.

Nor does the tax code explicitly say anywhere that they are.

Got that? But you've got to have 'skin in the game'. You've got to OWN the assets.

The Service in its dubious wisdom has allowed this egregious practice in the past and so the wholly specious argument being advanced is that having been allowed this ripoff in the past the beneficiaries are somehow entitled to continue to do so forever and ever, amen.

Bogus.

"But then, moving to our second astonishing Democratic capitulation of the day, these are the same people who can't get through, or refuse to get through, a bill to tax the income of private-equity firm execs—billionaires!—at the ordinary rate of 35 percent, instead of the current 15 percent. The Washington Post is reporting that Harry Reid met with private-equity firms and told them not to worry: no bill on carried interest would get through this year. He claims there's simply not enough time. And that it has nothing to do with one of the largest lobbying campaigns on record, encompassing some twenty firms and a single payment by one private-equity firm, the Blackstone Group, of $3.74 million, to its own Gucci Gulf denizens—"one of the largest recorded fees to any lobbying firm during a six month period." - Surrender, Dorothy - Rick Perlstein
http://commonsense.ourfuture.org/
surrender_dorothy?tx=3

Well, pointless probably, but for the semi-literate, skin in the game means in fact the Management Company in fact does have an ownership equity interest in the fund by granted and committed equity.

Now if the American government wishes to make up a definition about equity classes only being capital gains eligible in proportion to paid in capital, well, let them. I shall be ever more happy not to be an American VC fund, but then emerging markets are the new fun game.