Editore"s Note
Tilting at Windmills

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November 16, 2007
By: Kevin Drum

GROVER-LAND....Matt Yglesias asks:

Here's a question. We know that some Democrats are opposed to closing the "carried interest" tax loophole because hedge fund managers give a lot of money to Democrats. But so why don't Republicans try to embarrass the Chuck Schumers of the world by coming out against this loophole? Normally Republicans never miss a chance to do a favor to rich people, but most hedge fund money goes to Democrats so why not pull some jujitsu?

Silly Matt. Virtually every Republican in Congress has signed — using the blood of their first-born child — Grover Norquist's anti-tax pledge. Everyone knows that "closing a loophole" is just crafty liberalspeak for "increasing your taxes," so voting to tax hedge fund managers at normal rates would cause all pledge-abiding members of the GOP caucus to explode. Or, in any case, open them up to Grover Norquist saying mean things about them.

Besides, you know the old saying. "First they came for the hedge fund billionaires, and I didn't speak up because I was not a hedge fund billionaire. Then they came for the trust fund billionaires, and I didn't speak up because I was not a trust fund billionaire. They they came for the real estate billionaires, and I didn't speak up because I was not a real estate billionaire. Then they came for me, and by that time there were no billionaires left to speak up."

It's a dog-eat-dog world out there. America's billionaires need to stick together.

Kevin Drum 5:42 PM Permalink | Trackbacks | Comments (35)

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Comments

You forgot blogger billionaires!

Posted by: gregor on November 16, 2007 at 5:48 PM | PERMALINK

The "carried interest" tax loophole is a sideshow. Eliminate capital gains rates and the problem goes away.

Posted by: alex on November 16, 2007 at 5:52 PM | PERMALINK

Gregor: You're right! And I've only $999.9 million to go!

Posted by: Kevin Drum on November 16, 2007 at 5:53 PM | PERMALINK

Also, I gotta point out, hedge fund managers give a lot of money to Republicans too. Some of the political commentary you read makes them sound a heavily Democratic group, which isn't really true.

Posted by: y81 on November 16, 2007 at 6:03 PM | PERMALINK

Holy crap, Kevin, you're a hundred thousandaire? Flaunt it why doncha?


Posted by: anonymous on November 16, 2007 at 6:04 PM | PERMALINK

Dog-eat-dog world...dogs are afraid of flashes. But cats aren't. I can't get over that.

Posted by: shortstop on November 16, 2007 at 6:09 PM | PERMALINK

Those poor poor billionaires. My heart bleeds for them.

Posted by: CT on November 16, 2007 at 6:10 PM | PERMALINK

Nice post, Kevin. Of course, Nader was right that there is no difference between Rep and Dem in terms of serving $$. But he ignored that the Rs are both evil and incompetent.

Posted by: Gore/Edwards 08 on November 16, 2007 at 6:12 PM | PERMALINK

Holy crap, Kevin, you're a hundred thousandaire?

With place value skills like that, you'll get there soon, too, anonymous!

Posted by: junebug on November 16, 2007 at 6:16 PM | PERMALINK

The only exception the GOPers make is for trial lawyers. Oh, they hate trial lawyers.

But even Democratic-leaning hedge fund managers are safe because of the GOP's abiding obsession with class loyalty.

Posted by: Jim D on November 16, 2007 at 6:18 PM | PERMALINK

Sorry. Norquist is part and parcel of the "Republicans" who will probably be a minority in their party after 2008. His "tax pledge" is meaningless at this point.

Rather than worrying about Rethugs embarrassing the Dems in the Senate, I'd rather have Harry Reid embarrassing anyone who can't get behind this. Wall Street has lots of money but only so many votes.

Eliminate capital gains rates and the problem goes away. Posted by: alex

Actually, that needs to be raised so that the tax on unearned income is at least as high as the recipient's earned income bracket.

Posted by: JeffII on November 16, 2007 at 6:20 PM | PERMALINK

Why not a 'fee' instead? How about a 10 cent fee on each share of stock traded at each of the American markets? (1.7 billion shares traded today at NYSE alone.) Grover's right, we don't need no stinkin' taxes. There're 'fees', 'tarriffs' and probably a score of other ways for the gov to get money.

Posted by: slanted tom on November 16, 2007 at 6:23 PM | PERMALINK
Actually, that needs to be raised so that the tax on unearned income is at least as high as the recipient's earned income bracket.

Wasn't that what alex was suggesting? I mean, the natural reading for me of his recommendation to eliminate capital gains tax rates (not capital gains taxes) is that the preferential reduced rates would be eliminated and capital gains taxes as normal income.

Posted by: cmdicely on November 16, 2007 at 6:30 PM | PERMALINK

Sorry slanted tom, that would be a "sales tax". That won't fly - not only is it a tax, but if you apply to stock transactions it isn't sufficiently regressive to pass muster. Sort of negates the purpose of a sales tax, y'know?

Posted by: kenga on November 16, 2007 at 6:35 PM | PERMALINK

Speaking of Norquist. This "interview" is a must see. Chait is supposed to be the interviewee, but Norquist pretty much exploits the situation to demagogue in support of voodoo economics.

http://www.booktv.org/program.aspx?ProgramId=8699&SectionName=After%20Words&PlayMedia=No

Norquist sinks to a new low for supply-siders here. He actually tries to make it a matter of Civil Rights when it comes to the rich being taxed more. Amazingly, he tries to equate discrimination against blacks and women with discrimination against the rich when it comes to tax rates.

Beyond that, I was a bit disappointed that Chait didn't call him on more of his nonsense, including catching him in the logical contradiction of his BS. As in, Norquist believes we should cut taxes to starve the government. Yet, he continues to peddle (proudly) the lie that tax cuts lead to higher net revenues. So, using his own logic, if he wants to starve the government, he shouldn't be for tax cuts . . . cuz, well, he wants people to believe that tax cuts actually do the impossible and increase net revenues. That's obviously not starving the government.

Of course, IF tax cuts did even half of the amazing things the voodoo cabal says they do, we'd have balanced budgets forever and no one would go hungry ever again.

How on earth did we get to the point in this country where millions of middle class fools actually aid and abet a bunch of billionaires and help promote the idea of their victimhood?

Posted by: cuchulain on November 16, 2007 at 6:45 PM | PERMALINK

Wasn't that what alex was suggesting? I mean, the natural reading for me of his recommendation to eliminate capital gains tax rates (not capital gains taxes) is that the preferential reduced rates would be eliminated and capital gains taxes as normal income. Posted by: cmdicely

Could be, but it's unclear. In any case, unearned income needs to be treated differently and, in a just world, taxed at a rate higher than earned income. I'd settle, however, for it being taxed at the recipient's overall income tax rate.

Posted by: JeffII on November 16, 2007 at 6:53 PM | PERMALINK
In any case, unearned income needs to be treated differently and, in a just world, taxed at a rate higher than earned income.

I don't think its really fair to categorize capital gains as "unearned income". Sure, its not earned through wage labor, but its not (categorically) unearned, either (some large portion of it can be fairly described as unearned, but the whole class can't be categorically described that way.)

I'm not sure it needs to be treated differently, per se. There needs to be some accounting for the fact that long-term gains aren't like present-year earned income in a progressive tax system, or a middle-income family will get hosed when they sell a home, etc. OTOH, it shouldn't be so favorable that people who regularly make all most of their income in capital gains are being rewarded through the tax system at the expense of workers.

The best way, IMO, to do that is (in outline) to treat all income equally in a progressive income tax system, but to allow income to be voluntarily recognized (and taxes paid on it) in advance of its realization. This doesn't require actually treating any kind of income specially, but it allows people with irregular-but-expected capital gains to avoid getting bitten unfairly, while not allowing people with regular capital gains to escape their fair share of taxes.

The major capitalists will still pay more than most workers because they'll have bigger incomes, and progressivity will make them pay a bigger share.

Posted by: cmdicely on November 16, 2007 at 7:53 PM | PERMALINK

Speaking of not speaking up, I notice Kevin maintained a shame-faced silence throughout the James Watson Witch Hunt. "First, they came for America's most prominent man of science. Then, they came ..."

Posted by: Steve Sailer on November 16, 2007 at 8:09 PM | PERMALINK

Again, write about it your damned self. You have no shortage of outlets.

Posted by: Blue Girl, Red State (aka G.C.) on November 16, 2007 at 8:14 PM | PERMALINK

I'm curious, cmdicely, what part of capital gains are not "unearned"?

But I do agree with your suggestion.

Posted by: Dr. Morpheus on November 16, 2007 at 8:25 PM | PERMALINK

Sorry. Norquist is part and parcel of the "Republicans" who will probably be a minority in their party after 2008. His "tax pledge" is meaningless at this point.

Hes got a new angle: Constitutional amendment to stop political dynasty [Although he supported the Bush dynasty]

Posted by: Ya Know... on November 16, 2007 at 8:27 PM | PERMALINK

*snerk*

Good one, Kevin.

Posted by: wildone on November 16, 2007 at 8:40 PM | PERMALINK

I'm curious, cmdicely, what part of capital gains are not "unearned"? Posted by: Dr. Morpheus

There is none. It's not a term that I employed to make a point, but a statement of fact as to how interest income, capital gains, etc. are categorized. Capital gains are the income generated by investments, which is discrete from earned income. That's why they are called capital gains as opposed to wages or salary.

The one odd exception to the rule are pensions and the like. We could run ourselves dizzy about how retarded it is to tax Social Security.

* * * * *

unearned income Definition

An individual's income derived from sources other than employment, such as interest and dividends from investments, or income from rental property. also called unearned revenue. opposite of earned income.
http://www.investorwords.com/5141/unearned_income.html

Unearned Income
Any income that comes from investments and other sources unrelated to employment services.

Examples of unearned income include interest from a savings account, bond interest, tips, alimony, and dividends from stock. As long as this income is "realized" then it is taxable.
http://financial-dictionary.thefreedictionary.com/Unearned+Income

unearned income -- (1) income that has been collected in advance of the performance of a contract. (2) income that is derived from investments, such as dividends, property rentals, and other sources not involving the individual's direct personal efforts.
http://www.teachmefinance.com/Financial_Terms/unearned_income.html

http://www.mortgageloan.com/finance-glossary_Unearned-income

http://www.businessdictionary.com/definition/unearned-income.html

Posted by: JeffII on November 16, 2007 at 10:01 PM | PERMALINK

but to allow income to be voluntarily recognized (and taxes paid on it) in advance of its realization. and then
it allows people with irregular-but-expected capital gains to avoid getting bitten unfairly Do you mean untimely, as in all at once? A lot of people would like to see your method for predicting irregular but expected capital gains.

The irregular part happens regularly, just not to the same person; what I don't quite get is the "expected" part. Are you assuming that people who receive income through capital gains always receive income but suffer no losses and that income is predictable as to both its amount and timing? It's very sweet of you to permit such an individual to pay in advance, the IRS woud be most appreciative as well.

The current system limits capital losses to a net figure of $3,000. In years like 2000, would the investor whose losses would be irregular but predictable be permitted to deduct such a loss before realization. Seems fair, don't you think?

I agree, by the way, with a return to the treatment of capital gains and dividends as closer to ordinary income, although the AMT takes care of some of the difference, especially for the top 1 to 5% earners, I mean, er, unearners. It will mean a return to different shelters than the income/capital gain dodge under discussion.

Posted by: TJM on November 16, 2007 at 10:02 PM | PERMALINK

Fantastic sarcasm there, Kevin!

Dice, You can't tax expected capital gains fairly simply because the money is not there to pay the tax with. Besides, how do you determine what is expected, since most capital gains are from stocks, real estate, or other variable return investments? They also lose money; just ask any homeowner around here whose house decreased in values by close to 20% in the past year.

As far as the homeowner getting hosed, I believe there is a capital gains exemption of some kind for homeowners. If there is not, one could definitely be written into the tax code, so the middle income schmuck who sells the big house for the retirement nestegg doesn't get smeared.

As far as raising the overall tax levels go, it is a no brainer that overall government income will have to increase just to stay current with our overwhelming debt, which just went up another 1/2 trillion this year.

Posted by: bob in fla on November 16, 2007 at 11:10 PM | PERMALINK

Isn't it high time someone dragged Grover Norquist into a bathtub and drowned HIM?

Posted by: jprichva on November 17, 2007 at 12:44 AM | PERMALINK

Now, Kevin. Let’s not go bashing all billionaires. Warren Buffett has complained that his taxes are too low!

God bless Warren Buffett!

Posted by: The Conservative Deflator on November 17, 2007 at 6:31 AM | PERMALINK

I'm now a dedicated Democrat who would never vote for Senator Schumers. This supposed champion of the middle class won't vote to correct a tax injustice that helps his rich donors. This, on top of his vote for an Attorney General
nominee who can't recognize torture when he sees it.

homer www.altara.blogspot.com

Posted by: altara on November 17, 2007 at 7:59 AM | PERMALINK

Yes, God bless Warren Buffett. Now, if only we would listen to him, and take his suggestion to get rid of income taxes, and replace them with consumption taxes!

Posted by: Will Allen on November 17, 2007 at 10:51 AM | PERMALINK

http://www.cnbc.com/id/21553857/
"Tom: Of all the tax lines that you've seen proposed over the years, a flat tax, a consumption tax, a more progressive income tax, which is the one that appeals to you the most?

Warren: Well, in theory a progressive consumption tax makes the most sense. I mean, if you tax the people who use the resources of society rather than ones who-- who-- who provide the resources of society, that makes more sense. And a consumption tax can be very progressive.

You can have just an unlimited IRA. As long as you invest money, and don't actually spend it for yourself, or your kids don't spend it, or whatever-- you don't get taxed. As soon as you start making withdrawals from society's bank, start using the resources, the-- the sweat of other people to-- benefit yourself, you would pay on that. That-- that's the one that makes the most sense. I don't-- it isn't gonna happen-- in all likelihood.

Certainly the worst taxes-- is something like a sales tax. I would say that we've got a pretty bad system, when we tax the person who-- who cleans out my office, the receptionist. They are paying 15-- payroll taxes, over 15 percent now, just for openers.

Most of my income is taxed at 15 percent, and-- and doesn't pay a payroll. Mainly it’s dividends and capital gains. And if you look at the For-- Forbes 400, a bunch of my fellow rich guys-- they will-- their tax rate overall to the federal government will be less than that of their receptionist. And I challenge anybody. If they want to make me a bet on that, and I've urged Congress, both the Senate and the House, to get the figures anonymously from the IRS. Just look at that Forbes 400. Takes a billion three to get on the Forbes 400 this year. And the aggregate wealth is just staggering. And those people are paying less percentage of their total income to the federal government than their receptionists are. "


What he is talking about as a 'consumption tax' is really a very progressive income tax with a 100% deduction for financial industry investments (you will note he doesn't mention education, personal capital improvements like home improvements, etc, the kind of investments that regular people spend quite a bit of money on, but people like him spend virtually none of their income on).

I'd say he hasn't quite thought that through completely because there is a self inconsistency in what he is saying here: if the 99.9%+ of his income he doesn't spend wasn't taxed at all his tax rate would be vastly lower than it is now while presumably his secretary would pay vaguely the same rate.

However I suppose it might vaguely work if modified to include all investments rather than only financial industry ones, and accompanied by a hefty inheritance and gift tax (which he also supports).

There is another problem in that wealth disparity is not bad only because the wealthy will spend money inefficiently because they have so much, it creates a power disparity in society.

Posted by: jefff on November 17, 2007 at 12:10 PM | PERMALINK

If capital gains are taxed at ordinary rates, they should be indexed to inflation. Otherwise elderly people who sell their homes (for example) will be taxed for inflation (actually, they are now).

Posted by: skeptonomist on November 17, 2007 at 2:16 PM | PERMALINK

It's unforgivable that any Democrats at all are for not closing this loophole. Furthermore, I can't forgive Hillary for saying she does not want to remove the cap on SS-taxed income (she gave a BS riff about hurting people with a trillion dollar tax increase, etc. Well, that's exactly why it's such a great idea, so we can pay down the debt and keep SS solvent basically forever.) Obama smacked her down good: (approx): Hillary, only 6% of the population makes over 90k, the cap limit; that's not "the middle class." She looked with that hard bulgey stare.

I like her less and less and Obama or Edwards more and more. She gets too much money from right-wing type outfits, is too cozy with the plutocracy, etc. Time to change riders.

Posted by: Neil' on November 17, 2007 at 2:24 PM | PERMALINK

If capital gains are taxed at ordinary rates, they should be indexed to inflation. Otherwise elderly people who sell their homes (for example) will be taxed for inflation (actually, they are now). Posted by: skeptonomist

Not to worry. I think that the capital gains exception on primary residences is pretty much enshrined as a "Do Not Touch," as it should be. That being said, I think the capital gains tax on the sale of second and third residences should be at least 50%.

Posted by: JeffII on November 17, 2007 at 2:47 PM | PERMALINK

Yes, God bless Warren Buffett. Now, if only we would listen to him, and take his suggestion to get rid of income taxes, and replace them with consumption taxes! Posted by: Will Allen

Will, you're so full of shit. Buffet never said any such thing. Buffet's comments are on the inherent unfairness of our current tax codes which let the rich skate and penalize the middle and lower income brackets.

In particular Buffett urged the Senate Finance Committee not to repeal the estate tax. It is scheduled to come up for a vote, perhaps as soon as this week.

He told the committee that he recently compared how much he pays in taxes in terms of a percentage of his salary to what his employees pay.

The results? Buffett says he pays 18 percent of his salary to the IRS while the rest of his staff pays nearly twice that — 33 percent, a lopsided equation that put Buffett in a Robin Hood frame of mind.

"Frankly, an economy where my receptionist pays a lot higher tax rate than, than I do does not strike me as a just economy," he told lawmakers.

http://www.abcnews.go.com/GMA/story?id=3869458&page=1

Posted by: JeffII on November 17, 2007 at 2:51 PM | PERMALINK
... his suggestion to get rid of income taxes, and replace them with consumption taxes!Will Allen at 10:51 AM
We have consumption taxes: excise taxes, sales taxes, but no VAT tax as yet. These taxes amount to a flat tax on consumers especially those of lower income who must by necessity spend more of their limited income. The winners are, as usual, the wealthy who, while they may spend more, spend less as a percentage of their wealth. I can understand the Toadies of Great Wealth like yourself advocating such, but unlike you, Buffet spoke of a "progressive" consumption tax .

Warren:...Well, in theory a progressive consumption tax makes the most sense. I mean, if you tax the people who use the resources of society rather than ones who-- who-- who provide the resources of society, that makes more sense. And a consumption tax can be very progressive.
You can have just an unlimited IRA. As long as you invest money, and don't actually spend it for yourself, or your kids don't spend it, or whatever-- you don't get taxed. As soon as you start making withdrawals from society's bank, start using the resources, the-- the sweat of other people to-- benefit yourself, you would pay on that. That-- that's the one that makes the most sense. I don't-- it isn't gonna happen-- in all likelihood.
Certainly the worst taxes-- is something like a sales tax. I would say that we've got a pretty bad system, when we tax the person who-- who cleans out my office, the receptionist. They are paying 15-- payroll taxes, over 15 percent now, just for openers.
Most of my income is taxed at 15 percent, and-- and doesn't pay a payroll. Mainly it’s dividends and capital gains. And if you look at the For-- Forbes 400, a bunch of my fellow rich guys-- they will-- their tax rate overall to the federal government will be less than that of their receptionist. And I challenge anybody. If they want to make me a bet on that, and I've urged Congress, both the Senate and the House, to get the figures anonymously from the IRS. Just look at that Forbes 400. Takes a billion three to get on the Forbes 400 this year. And the aggregate wealth is just staggering. And those people are paying less percentage of their total income to the federal government than their receptionists are....

Posted by: Mike on November 17, 2007 at 4:24 PM | PERMALINK




 

 

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