Tag Archives: hedge funds

GOP Excuses, Excuses, Excuses: How the GOP Fights Tax Cuts for Middle America

GOP Excuses Radio

There’s an old saw, “Those who are good at making excuses usually aren’t much good at anything else,” and the GOP is offering up a vivid example of this truth.

No sooner does the President’s plan to cut taxes for middle class Americans and raise taxes for the top 1% of income earners come out – notice we’re not using the expression “wage or salary earners” – than the GOP cranks up the Whine Machine with all the old excuses.

Hoary Old Excuse Number One: It will hurt small business.  This topic has been covered before, when DB provided some myths, facts, and figures about Small Businesses in the good old U.S. of A.

“Here’s the point at which not all tax breaks are created equally.  Most firms in the U.S. are bringing in less than $500,000 in receipts annually.  Formulas based on the number of employees alone will necessarily benefit those establishments which may hire fewer than 500 persons, BUT which may also be generating receipts well over the common $500,000 threshold for receipts.”

The GOP played this game before, H.R. 9 back in 2012 gave a $46 billion loophole to the 1%, all in the name of “small business.’   Who would be the primary beneficiary of the GOP largess?  Try Hedge Funds and Lobby Shops.  Both have small numbers of employees, thus earning the categorization of “small business” from the Republicans, BUT small hedge funds are those with less than $100 million assets under management, medium sized ones range from $100 million and $999 million, and then there are the big ones – the ones with funds from $1 billion to $5 billion. [BusInsider]  Since when is a firm with $500 million worth of assets under management the same thing as the 76% of American businesses which have annual incomes below $200,000?  Only in Republican mythology would Mom’s Diner be in the same category as Mighty Mountain Megamoney Capital Management.

Hoary Old Excuse Number Two: “You’ll Be Next.”  Fear-mongering is one of the things Republicans do best. If we raise taxes on the incomes of the Top 1%, the “tax and spend” Democrats will come after you next.  Not. So. Fast. Remember the second part of President Obama’s proposal is a tax CUT for those who are among the vast 99% of the American public not basking in the upper reaches of income levels.  How does one explain ‘they’re coming after you’ when YOU (at least those of us in the 99% range) are to be the beneficiaries of a tax CUT?

Hoary Old Excuse Number Three:  Here they go again, “Are you going to actually grow the economy and jobs, are entrepreneurs going to be better off, are small businessmen going to be better off, with more taxes and more government? No!” he (Rep. Chaffetz R-UT) told CNN’s “State of the Union” show.”  [Reuters] This little mish-mash has all the basic GOP  elements tucked into a nice sound bite. The premise is that the economy won’t grow if taxes are increasedWrong. Under good old fashioned garden variety Capitalism, the economy grows as people make transactions in the REAL economy.  They manufacture things, provide services, transport things, sell things, buy things, and generally do so with cash or credit instruments.  The notion that more taxation at upper income levels will decrease investment pre-supposes that (1) all investment is located in or targeted to the REAL economy, and (2) all upper income investors will necessarily invest less in REAL economic prospects at larger taxation levels even though the investments may be high quality.  Both of these ideas are downright silly.

There is a whopping difference between investment in shares of common stock issued by General Widget and Gadget Inc. and investment in Mount St. Helen’s Volcanic Macro Hedge Fund.  One is capitalism, the other is gambling.   If you aren’t sure about this take a gander at what happened to the formerly very real Mount Everest Hedge Fund.  The fund bet the ranch on the Swiss Franc’s dropping – it didn’t.   This brings us to GOP conflation number four.

Hoary Old Excuse Number FourWe are punishing success! Nonsense. We tax income.  If we look at the top 1% there is a range of professions included, but focusing on the source of household income the scene is a bit different:

“We find that executives, managers, supervisors, and financial professionals account for about 60 percent of the top 0.1 percent of income earners in recent years, and can account for 70 percent of the increase in the share of national income going to the top 0.1 percent of the income distribution between 1979 and 2005,” [WaPo, WilliamsEdu pdf]

A person who is a successful carpenter, steelworker, teacher, firefighter, grocery store owner, salon/beauty shop owner, hardware store owner makes his or her income by working.  Those top earners? Securities, business equity, and investments.  At the risk of being a bit crude about it, we now tax the incomes of those who actually manufacture screwdrivers, transport screwdrivers, and sell screwdrivers at a higher rate than we tax those who assemble funds to leverage the hostile takeover of the screwdriver manufacturing company, sell off the assets of the screwdriver company to pay off the incurred debt, and then toddle off to their next financial adventure.   This shouldn’t be about “punishment” perhaps it ought to be about REWARDS – as in, how do we reward WORK. 

Win big in the local casino and you’ll probably have between 25% and 28% kept back for Uncle Sam, [turbo] but gamble in a hedge fund that bets on the British Pound and the capital gains tax is 15%.  Are we rewarding work or speculation?

No one minds rewarding success, but rewarding speculation is another matter entirely.

However, those enthralled with the now thoroughly debunked Trickle Down rationalization for the aggrandizement of the top 0.1% will still cling to their talking points.  It’s high time we stopped listening.

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Filed under Economy, Taxation

Income in America – The Hurrier We Go The Behinder We Get?

The average worker’s pay in the state of Nevada is $35,206 per year. The average CEO pay is $5,130,077.  That’s a ratio of 146-1 in favor of the CEO, a figure which rockets up to 299-1 if CEO compensation is compared to our minimum wage earners.   [Paywatch]  If we look to the 89101 Zip code specifically, the median annual compensation for a CEO is $736,318 or 21 times the earnings of the average worker.  The range in that area goes from $396,391 to $1.059,652. [SalWiz]  If we look north, the average CEO compensation in the 89501 Zip code is $732,846, with a range of $394,522 to $1,054,657. [SalWiz]  The problem isn’t that some individuals are paid more than others — the core issue is that there are economic pressures which continue to put a drag on our economic recovery, and some of these are the result of wage and tax policies which favor financialism over good old fashioned capitalism.

The first argument launched from the conservative side of the spectrum is that these numbers are necessarily flawed, and therefore of little utility in debate about wages, salaries, and compensation in general.  However many issues the Center on Executive Compensation , allied with the U.S. Chamber of Commerce, and the National Association of Corporate Directors, may have with the methodology, and with the proposed SEC rules on ratios, [Blmbrg]  the points remain — (1) Multinational and other large corporations really don’t want to disclose their CEO pay packages, and (2) They really don’t want the issue of executive compensation tied into the discussions of tax equity and fairness.

This is an interesting line because corporations generally have no problem reducing almost any issue by quantification, be it allocation of purchasing orders or labor costs and productivity.  One easily reached conclusion is that the quantification called for by the SEC under the terms of the Dodd Frank Act isn’t something the corporations want to do.

The second common assertion is that these are the “job creators,” and therefore should be immune from any additional taxation, and certainly from any increase in the taxation of capital gains.  We are continually told that any attempts to adjust the inequities via minimum wage increases or tax policy will have dire effects on small business.  Testing this contention requires looking more carefully at the old common ‘wisdom’ that small companies are the driving force in job creation.  There’s some evidence this may not necessarily be the case.

While it’s still true that businesses with 49 employees or less create the most jobs, the trend since 1990 indicates that large employers (over 500 employees) added 29% more workers between 1990 and 2011, while those with 50 or less added 10.9% more. [NYT BLS]  In short, what the large corporations do in terms of compensation of CEOs and employees is important, and become more so as additional jobs are the result of hiring decisions made by large firms.

Practical Matters

## As a practical matter, income inequality only becomes a problem when such a large portion of wealth is tied up in the hands of so few that the savings capacity of individual workers is reduced.  Obviously, at the theoretical level, the more workers save the more money becomes available for investment.  Practically, the more workers are able to save the less reliance there is on social safety net programs, and the more savings accounts of all varieties are available for (a) consumer spending — such as in retirement, and (b) investment by the banks and mutual funds which hold them.

One way to observe this in the real world is to look at what people are doing with their 401(k) accounts.  Now that housing isn’t the most apparent source of income, individuals and families are increasingly tapping their retirement accounts to meet necessary expenses.  In 2011, for example, Americans withdrew about $57 billion from their retirement accounts while home equity loans were down by 38%. [Blmbrg]*

At the consumer debt level, the Federal Reserve’s report on Household Debt Service and Financial Obligations ratios shows consumer debt which bottomed at 4.97 in the first quarter of 2012 is now back up to 5.14.  People who are borrowing aren’t saving, and if they aren’t saving then those funds are not available for investment.

Our debt levels are back up and our personal savings rates are headed back down.  The Federal Reserve chart shows an increase in personal savings during recessionary periods, a spike in December 2012, and then back down we went.

Personal Savings RateNothing says “squeezing the middle’ quite like watching (a) dipping into retirement accounts, (b) increasing consumer debt, and (c) declining personal savings.

## Income inequality becomes a problem when the funds which should be invested in the expansion or improvement of capital projects is diverted into ‘manufacturing’ financial products which add wealth to their holders and traders, but do not add assets, fixed or short term, to corporate enterprises.  Look at the following chart showing the trends in how banks earn their income:

US investment banking fee composition

(See Capital Markets Outlook – Deloitte Israel, Global Investment Banking Review – Thomson Reuters, both in pdf)

Trading in “equities” is earning a larger portion of banking revenues in recent days, from 17% to 48%, while loans have contracted since 2005.  And bonds, the old staple of the investment banking sector? Improving, but not as well as the equities column of the ledger.

If the tax on capital gains is only 15% then what incentive does an investor have to invest for the long term in manufacturing capacity?  For that matter, if funds are in the hands of institutional investors what incentive is there for long term investment instead of seeking short term gains?  In 1995 institutional investors held 140.8% of our GDP, in 2011 that number had increased to 211.2%.  In 1995 institutional investors held $11,223 billion in financial assets, by 2011 that figure stood at $24,220 billion. [OECD pdf]  And then there’s this chart — notice the increase in the column representing investment funds compared to that of pension funds:

Investment Institutions by typeIt isn’t a stretch to conclude that recent trends indicate there are more institutional investors and those investors are increasingly in the form of ‘investment funds.’  The small chart below shows the the increase in the number of hedge funds since 2000:

Hedge Funds






And, as we might guess, the smaller, newer funds are doing well, but they’re also more likely to ‘blow up.’ [FTAlphaville]  It’s necessary to remember that what’s good for the hedge funds and asset managers (short term gains) is not necessarily good for the rest of the economy (long term stable prosperity).   The focus of the money managers is, predictably, money. Money becomes the ultimate measure of wealth, not the fixed and other assets of other enterprises.

If we’re looking for the barriers to economic growth in the U.S. some attention needs to be paid to (1) the growing income inequality which puts pressure on individual and family saving capacity; (2) tax policy which rewards investment for the sake of ‘money’ rather than investment for the sake of long term corporate viability; (3) the role of institutional investors and their agendas in the financial markets; and (4) the declining role of retirement funds for their original purpose (retirement) and in the overall institutional investor landscape.

We’ll do better when we can return to the traditions of capitalism — in which wealth is measured not only by bank accounts, but by what those bank accounts can provide for the businesses and industries who build them.

* See also: Angry Bear Blog “Americans Raid 401(k)s” May 8, 2014; EPI, “The State of U.S. Retirement,” March 12, 2014; Naked Capitalism, “Even Harsh Frontline Program on Retirement Investments Understates How Bad They Are,” April 24, 2013.  CAP “What Can We Do About Retirement Fees Straining Middle Class,” April 15, 2014.


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Filed under Economy, Politics

The Bankrupt Bankruptcy Business Model

bankerOne of the perpetual refrains from conservatives is that we should “run our government like a business.”  This is wrong at all levels, but given the current reign of the financialists it’s dangerous, and ought to be labelled as such.  Let’s start with the old, familiar, axiom: One man’s debt is another man’s asset.

The Basics and Bankruptcy

If you lend me $X it is my debt and your asset (receivable). If I cannot repay you then I can only unburden my indebtedness by declaring bankruptcy.  Let’s take this above the personal level.  If you lend my business $X and I cannot repay it, then bankruptcy is the last option.  Now, moving up another step.  Corporation A issues bonds (debt) which are purchased in the bond market.  If there is “too much” debt, it’s time for bankruptcy.

In a corporate bankruptcy the first claimants are the firms handling the bankruptcy – the law firm guiding the bankruptcy; the accountancy firm doing the final postings for the bankrupt company; and, the company handling the sale of the company assets.   This is a lucrative part of the process for these first claimants.   One recent bankruptcy, that of Kodak Inc., started with an almost startling amount of associated fees: “Fee examiner Richard Stern recommended approval of about $235.8 million in fees and another $7.2 million in expenses, according to an 87-page report in U.S. Bankruptcy Court in Manhattan.” [Reuters, Nov. 2013]

After the corporation, such as Kodak, has paid the fees associated with the bankruptcy, the secured creditors are the next claimants.  A secured creditor is one who lent the company money for physical assets.  These might be company buildings and furnishings, leases for equipment and vehicles, or loans for equipment which have not been paid in full.

Funds remaining after the fees and the secured creditors are paid go to the next level of claimants — the unsecured creditors.  Here’s the part where the bondholders come on stage.

“The rights of the bondholders are stronger than the equity holders of the firm. Bondholders get paid off before the equity holders in liquidation and they are first in line to receive new securities, cash or a mixture or both should a reorganization occur. Within the bondholder’s group there is also a pecking order based on the seniority of each claim. Bondholders with more seniority, set forth in the indentures of the various classes of securities issued by the bankrupt firm, will receive their shares before the more junior holders.” [Investopedia]

And now the stage is set, and we need to take a look at the theater of the economics of bankruptcy.

Voluntary and Involuntary Vultures

There are two forms of bankruptcy, voluntary and involuntary.  In the  involuntary form the creditors  force the business into the process by filing for its bankruptcy.  In its most nefarious incarnation, this type of involuntary bankruptcy is referred to as Vulture Capitalism.   A classic example of Vulture Capitalism comes to us compliments of Bain Capital Management which purchased a Kansas City  steel mill and promptly loaded the reorganized company with …. more debt.   A toxic combination of poor management and debts which had skyrocketed to $387 million by 1995 meant the company had little choice but to declare bankruptcy in 2001.   And guess what?  In 2002 it was discovered that the company had underfunded its pension plan by approximately $44 million.  Workers laid off in the aftermath of the bankruptcy received the basic retirement but NOT the supplemental retirement package they’d negotiated with management in case of the mill’s closure.  [MJ]

An even more egregious example comes from the land of Twinkies.  The corporation faced bankruptcy in 2004, secured all manner of employee give-backs, and as in the steel mill example went on to incur even more debt. Two firms, Silver Point Capital and Monarch Alternative Capital, ended up owning some 60% of the firm’s debt.  Enter the Ripplewood factor:

“Following these massive givebacks, a private equity company called Ripplewood Holdings brought the company out of bankruptcy in 2009 for $130 million and rechristened it Hostess Brands. The hedge funds and other lenders forgave some old debt and extended some new debt. Ripplewood convinced the other stakeholders that it could turn the company around and, apparently, convinced them so completely that only Hostess Management and Ripplewood had seats on the board. Neither the unions nor the hedge funds acquired voting seats as part of the deals struck to keep the company afloat. They just trusted Ripplewood to turn things around, implement new technologies, introduce new products, and rebuild aging infrastructure.” [Salon]

Now we had “Hostess Brands” under Ripplewood Holdings domain, and the results weren’t pretty.  Suffice it to say that Ripplewood didn’t know what it was doing.  No new or much improved products were created, the company took on yet more debt, plants weren’t modernized, and eventually the edifice collapsed in a heap of finger pointing at the workers and their union, although the hedge funds and the unions had no effective representation under the Ripplewood Holdings management scheme.

IF we want a government run like a “modern” business then it would be subject to the same kind of manipulation by the financialists as the producers at the Kodak plant, the Kansas City steel mill, and the cupcake factories.

Detroit City

Call it Shock Doctrine Disaster Capitalism or Austerity Politics as you will, the outcome is essentially the same:  An elected government is “bankrupted” by its creditors.  Remember — One man’s debt is another man’s asset — so if corporations aren’t issuing as much debt because of low interest rates from the Federal Reserve, where’s a poor hedge fund supposed to find new sources of debt to buy up?   Municipal debts.  Some players are familiar.

“Monarch Alternative Capital, which played a major role in the bankruptcy of Twinkie-maker Hostess Brands Inc, and several other funds have scooped up more than $600 million of debts of Jefferson County, Alabama, according to court records.”  [Reuters]

And, the vultures were circling Detroit last May:

“With $8.6 billion in long-term debt, Detroit would be comparable to the biggest corporate failures if it eventually files for bankruptcy, a major advantage for big hedge funds that are used to investing hundreds of millions of dollars at a time.

The sheer size of Detroit’s debt should make it easier for the funds to track down very large chunks of bonds, magnifying their profit potential, cutting their research and advisory costs and giving them leverage when it comes to restructuring talks.”  [Reuters]

In case the trail is getting a bit tangled to follow — a municipality like Jefferson County, Alabama or Detroit, Michigan takes on debt by issuing bonds.  The bond holders are creditors, and in the great arc of mismanagement pension plans are underfunded, the creditors determine there is “too much” debt and it’s time to swoop in and pick the carcass — for fees, of course.   Refer back to the $238.5 million in fees collected in the bankruptcy of just one corporation, Kodak.

This is privatization on steroids.  A municipality is encouraged to issue bonds to improve or supply government services.  In the Jefferson County example it was for necessary improvements and renovations to its sewer system.   The firm underwriting the sale of the bonds “makes a market” for them, i.e. sells them to investors (perhaps hedge funds.)

If the municipality can be convinced to issue yet more bonds — by bond marketers who want to make “more markets,” the underwriters profit, and the creditors (investors in those bonds) until the creditors become sufficiently nervous and create enough panic to force the municipality into involuntary bankruptcy.  Then the story continues — the municipal assets are sold off to private investors, (such as the Detroit Institute of Art’s collection, or the assets of Jefferson County, AL)  the creditors may or may not be made whole, the “government” is reorganized and the bankers are pleased as punch.


The logical outcome is an ultra-libertarian wet dream.   There is no remaining communal property — the art collections are sold off to people who “will appreciate them,” or the school buses will be purchased by the highest bidder.  The water system will be taken over by a private company; the roads and bridges are now able to collect tolls for their use.  All the schools are run by private corporations, the parks are restructured into “fee for use,” and the libraries are “by subscription only.”   And, if a “service” cannot be performed at a profit it will be discontinued.

But, the bankers will be pleased.  The “government” is now being “run” just like any other corporation — any other corporation vulnerable to the manipulations of the financialists who would create their wealth from the indebtedness of others be it  personal (car, student, and mortgage loans), corporate (bonds), or governmental (bonds.)   It’s all just money to them. The real bankruptcy here is moral.

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Filed under Economy

White House Press Corps: Free Questions

Since the White House press corps seems to have great difficulty coming up with questions during briefings and conferences which aren’t simply regurgitations of the “other side’s talking points du jour”  (as made perfectly clear on the Daily Show this evening), perhaps blogs should offer some assistance.   In the spirit of helpfulness, here are some questions I’d like to hear someone ask:

1.  The Department of Justice has acknowledged it has opened a criminal investigation into the possibility of illegal manipulation of benchmark interest rates by bankers affiliated with LIBOR. [Bloomberg]  Without jeopardizing future prosecution, what can you tell us about the scope of the investigation, the possible statutes which have been violated, and the cooperation the U.S. is receiving from European regulators?

2.  The Mine Safety and Health Administration released its report on the tragic explosion at the Big Branch Mine on March 6th.  Among the findings, it said: “District 4 personnel did not intervene as Massey manipulated MSHA procedures to avoid complying with reduced standards for respirable coal mine dust and allowed the operator to significantly delay corrective action to reduce miners’ exposures to unhealthy respirable dust concentrations after overexposures were identified.” What measures is the Administration taking to insure that the manipulation of procedures and the delayed corrective actions are not replicated in other mines?

3. The Administration’s framework for taxation reform calls for ” imposing a minimum rate of tax on income earned by subsidiaries of U.S. corporations operating abroad.”  This is suggested to give U.S. corporations an incentive not to shift funds overseas.  What minimum rate do you believe would remove the incentives for U.S. corporations to shift operations and profits overseas?

4.  The Department of Labor just issued rules for the H-2B guest workers to be temporary employees in jobs that do not require a college degree.  There is a proposed joint resolution in Congress to nullify these rules, saying they are “too burdensome” for employers.  [EPI] What factors did the Department take into consideration during the drafting of these regulations, and how does the Department think the rules will affect employers and employees?

5. The EPA reported that there are now 114 active Super Fund sites in New Jersey.  The EPA admits it did not act on 27 sites, and then disclosed that there were 9 more sites on which it had not acted. [PEER] What is the Administration doing to better inform communities in which there are Super Fund eligible sites which are not listed by the EPA?

6. Nearly every proposal to cope with the problem of homeowners who are either in the foreclosure process or are in “underwater” mortgages which threaten future foreclosure, has studiously avoided discussing the renegotiation of principal.  Would it not be better for all concerned if mortgage holders would agree to renegotiate principal such that they would at least be paid something?

7.  Lt. General Thomas Bostick testified before Congress that the Army’s disability evaluation system is “fundamentally flawed” and some military families have to wait almost ten months for decisions on their status. This situation effects almost 20,000 soldiers. What is the Pentagon doing to streamline the process to fix this problem? [Army Times]

8.  House Republicans plan to introduce legislation which would give hedge funds a way to deduct 20% from their tax liability if they have fewer than 500 employees. [Bloomberg] What is the Administration’s position on this proposal?

9.  There are reports that Syria’s Deputy Oil Minister has defected to the side of the protesters.  [AJE] If the broadcast proves to be true how might this inform the U.S. position on our policy toward Syria?

10. Germany’s Environment Minister told Der Speigel in an interview yesterday that the planned phase out of nuclear energy was moving forward and that the current German “Energy Plan” is moving along successfully.  How would you evaluate the success of the U.S. in moving toward a more energy efficient, and new energy source, economy in comparison with the Germans?

Feel free to have any or all of these questions — one or two might help you keep from getting skewered on the Daily Show?

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Filed under ecology, Foreclosures, Immigration, Mine Safety

Taking STOCK: House waters down S. 2038

All three Congressional Representatives from Nevada voted in favor of the House version of S. 2038, the STOCK Act [roll call 47] but bluntly speaking there’s not much in the watered-down House version of the bill to crow about.  The bill, intended to prevent insider trading by members of Congress, has been stripped of two major components.

An amendment from Senator Mike Enzi (R-WY) added that transactions concerning “widely held investment funds” did not require reporting.  Therefore, if a Senator or Representative had “inside” information about legislation pending which might impact a “widely held investment fund” no transparency would be required.

Senate amendment 1505, submitted by Senator Rob Portman (R-OH) specified  that political intelligence includes information gathered from executive branch employees, Congressional employees, and Members of Congress. Senate amendment 1483, from Senator Charles Grassley (R-IA) requires disclosure of political intelligence activities under Lobbying Disclosure Act of 1995. The political intelligence portion of the measure is of interest.

“..the House bill cut a provision that was in the Senate version requiring people who collect and trade so-called political intelligence — information from government that can move markets and stock prices — to register just like lobbyists if they want to talk with covered officials in Congress and the executive branch so that the public knows who they are and what they’re doing.” [HuffPo]

In short, the House version strips out any regulation of political intelligence gathered on behalf of hedge funds, mutual funds, and other investors. [C&L]  How nice for the Financialists.

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Filed under Amodei, Berkley, financial regulation, Heck

Carried Interest to the Bank

As the plot thickens around the tax returns of presidential candidate Willard Mitt Romney, the term “carried interest” will be bandied about more often.  It describes a tax break for the ultra-wealthy economic elite not available to such firms as John’s Local Carpentry or Lewis’s Landramat.

One of the best explanations comes from The Atlantic:

“Managers of private equity firms like Romney are often paid under an arrangement in which they receive both a set fee for their management, as well as a share of the profits that the firm makes for investors. While their management fees are taxed at normal income tax rates, the share of investor gains that go to a private equity manager (called “carried interest”) are treated as capital gains, and thus taxed at a top rate of 15 percent. (Hedge fund managers and partners in real estate ventures also benefit from receiving carried interest.)

The argument for a lower capital gains rate is that it encourages investment. Whether that’s true or not, private equity managers are allowed to pay the capital gains rate on the profits they make managing someone else’s money, not for any risk that they take themselves. Treating carried interest as capital gains is an unjustifiable tax break that needs to be eliminated.”  (emphasis added)

It’s the part after “not” that should be of interest to most taxpayers.  If the private equity managers were risking their own treasuries in the investment process, then the capital gains taxation rate might make a little sense.  However, their profits are made by managing Other People’s Risk — not their own.

But, but, but…if carried interest were to be taxed as the income it is wouldn’t private equity investment dry up, blow away, and depart the investment field?  Not likely.  The actual sources of the wealth under management, wealthy individuals, pension funds, etc. still need to put their funds somewhere in order to earn interest.

But, but, but…doesn’t private equity investment represent the best form of capitalism because of the “sense of ownership” implied?  Not likely.  Remember, the entire purpose of firms like Bain Capital, and 19 other extremely lucrative operations, is to get the best return FOR THE INVESTORS.  Not the company operations, not the company mission, not the company’s infrastructural environment — BUT FOR THE INVESTORS.

If the needs of the investors are absolutely paramount, then employee benefits are of little or no interest, employee wages and salaries are of little or no interest, the tax environment is of no interest except to see taxation reduced, and the Investors can easily expect the Little People to carry the burden for providing local services like police and fire protection while their concerns (earnings) are held inviolable.  This is a recipe for short term gains and long term losses.

And, and, and, what do we call it when one sector of the economy — which is only concerned with the manipulation of financial paper and the earnings thereon — becomes the raison d’etre for the entire economy?  Financialism.

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Filed under Romney, Taxation