Closing tax loopholes for billionaires

    moveon_graph_v04

    I don’t have the time or desire to put together a long post tonight on how our American tax code is unnecessarily complicated, and favors the super-rich. To do it well would be a daunting task, and I’m not up for it at the moment. What I am up for, however, is passing along this one, simple image from MoveOn, that I think captures one specific issue in need of reform very well – that being the so-called “hedge fund loophole.” For those of you who have never heard of the hedge fund loophole, here’s a little in the way of explanation from a recent piece in the Christian Science Monitor by Robert Reich:

    Who could be opposed to closing a tax loophole that allows hedge-fund and private equity managers to treat their earnings as capital gains – and pay a rate of only 15 percent rather than the 35 percent applied to ordinary income?

    Answer: Some of the nation’s most prominent and wealthiest private asset managers, such as Paul Allen and Henry Kravis, who, along with hordes of lobbyists, are determined to keep the loophole wide open.

    The House has already tried three times to close it only to have the Senate cave in because of campaign donations from these and other financiers who benefit from it.

    But the measure will be brought up again in the next few weeks, and this time the result could be different. Few senators want to be overtly seen as favoring Wall Street. And tax revenues are needed to help pay for extensions of popular tax cuts, such as the college tax credit that reduces college costs for tens of thousands of poor and middle class families. Closing this particular loophole would net some $20 billion.

    It’s not as if these investment fund managers are worth a $20 billion subsidy. Nonetheless they argue that if they have to pay at the normal rate they’ll be discouraged from investing in innovative companies and startups. But if such investments are worthwhile they shouldn’t need to be subsidized. Besides, in the years leading up to the crash of 2008, hedge-fund and private equity fund managers weren’t exactly models of public service. Many speculated in ways that destabilized the whole financial system…

    As someone who has a little high-tech startup experience, I’m aware of the critical role that investors play, and, as much as I like to beat up the super-rich on my blog, I do recognize that, while sometimes distasteful, these are people without whom we’d likely not have the internet, new treatments for cancer, personal computers, and any number of other things that we enjoy today. So, I do feel as though there should be incentives in place to encourage entrepreneurial risk-taking, within reason. For instance, it’s my understanding that legislation just passed the Michigan House which would, when enacted, allow certified angel investors to claim income-tax credits equal to 25% of an investment in qualified seed-stage or early-stage Michigan entities. (A cap would be set so that no more than $10 million in credits would be distributed per year.) And I support that legislation. It encourages risk taking when it comes to vulnerable, early-stage businesses, but it doesn’t seek to make profits, should they result, tax-exempt… Anyway, if you should happen to agree with the folks at MoveOn that the discrepancy between the tax rates paid by teachers and hedge fund managers is egregious, pick up a phone, call your elected officials, and tell them to close the so-called “hedge fund loophole.” (I believe it’s coming up for a vote shortly.) Here, for people in the Ypsi/Arbor area, are the numbers to call.

    Senator Debbie Stabenow: 202-224-4822
    Senator Carl Levin: 202-224-6221
    Congressman John Dingell: 202-225-4071

    I’d like to say more, but This entry was posted in Economics, entrepreneurism, Politics and tagged , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

      42 Comments

      1. anonymous
        Posted May 26, 2010 at 9:48 pm | Permalink

        What’s wrong with the picture? If the people’s heights are supposed to be proportional to their income, then the doctor should be three times taller than the police officer (I’m not knocking doctors, btw) and the hedge fund manager should be about 6 times taller than the doctor. As it is, it looks like the doctor comes up to about 1/3 to 1/2 the hedge fund manager’s height (the other people probably aren’t drawn proportionally either, it’s just not as obvious).

        Though maybe they meant to have the areas proportional rather than the heights. That would take a lot more time to check.

        Also, is it fair to compare the marginal tax rates, or the overall tax rates? And is it fair to give precise values for most categories, but only “as low as” for the hedge fund manager? Or, to limit that average to only the top 25 such managers, thereby making it a lot higher?

      2. EOS
        Posted May 27, 2010 at 6:20 am | Permalink

        What’s wrong with the picture? Well, the marginal tax rate for the firefighter, teacher, and police officer is not 25%. That’s an exaggeration. And if the billionaire does manage to pay as low as 15%, then his tax bill is over a million and a half dollars! All the individuals receive the same level of governmental services, but the billionaire pays 120 times as much for his share. MoveOn.org is doing its bit to create class hostilities and encourage the majority to blame a few hard working individuals for the problems of government. The solution is not to take more from the wealthy, but to reduce spending in the first place. Even if we could tax the wealthy at 100% of their earnings, we still wouldn’t collect enough to make up for the annual deficit in Washington’s spending, and still wouldn’t make a dent in the National debt. When the coming fiscal crisis hits and everyone feels the effects of cutbacks in essential services, those in power in the government would rather have the masses angry at a few wealthy individuals than to place the blame where it belongs in the halls of Congress.

      3. Kevin
        Posted May 27, 2010 at 8:53 am | Permalink

        I think the size of the people is correct, if you look at everyone in relation to the hedge fund manager. I’m not a statistician, but I don’t think the doctor would necessarily appear three times the size of the fire fighter if they were all being looked at in relation to the hedge fund guy. Maybe I’m wrong, though.

      4. Edward
        Posted May 27, 2010 at 8:58 am | Permalink

        How long does it take to “eyeball” a fifth of vodka?

        With one eye?

        With two eyes?

      5. Peter Larson
        Posted May 27, 2010 at 9:27 am | Permalink

        I can’t believe I agree with EOS on something. MoveOn is full of simplified, propagandistic bullshit on a good day.

        While it may appear unfair that billionaires pay by percentage a small amount of their income, the fact is that they invest heavily in the US and world economies in addition to paying heavily in state and local property, sales and income taxes, which all goes into municipal coffers.

        Closing the loophole might make for good election year politics, but it would be bad economic policy, in my opinion. The image is that these wealth individuals hoard all their money and laugh at the masses, but the fact is that they spend keeping economies afloat in addition to giving to charitable organizations. Taxing them further would reduce the amount of money given to worldwide charities and reduce the amount of money that could be invested to create jobs.

        This simplistic “hang the rich out to dry” has got to go. Economics are just not that simple.

      6. Kim
        Posted May 27, 2010 at 9:30 am | Permalink

        It’s not the rich, it’s hedge fund managers that people are angry with.

      7. Peter Larson
        Posted May 27, 2010 at 9:34 am | Permalink

        Ah yes. I see that the graphic was for hedge fund managers only now.

      8. Glen S.
        Posted May 27, 2010 at 10:22 am | Permalink

        “Trickle-down Economics” is perhaps the biggest scam ever perpetrated by wealthy elites against the interests of ordinary working people in history.

        Ever since Reagan in was elected in 1980 (and continued by subsequent Republican and Democratic administrations since) an ever-increasing amount of national wealth and resources has been systematically concentrated among the top 1% (and even more among the top .01 %) — all premised on the idea that rewarding the rich with big tax breaks would stimulate investment, job creation, etc.

        30 years later, the reality is finally setting in: Instead of being invested in productive endeavors, much of that idle, accumulated wealth fueled the real estate/derivatives/hedge fund bubble that is just BEGINNING to play itself around the world — as nations, (and some U.S. states) teeter on the edge of bankruptcy. Meanwhile, Real-dollar wages for most Americans have been falling for decades, unemployment is stuck at near-record highs, much of our critical infrastructure is crumbling, an we continue to fall farther behind in many measures of overall health, environment, education, innovation, etc.

        Yet, as soon as some people begin to point this out, or begin to suggest the need for even modest tax reform (for instance — reverting back to the more sensible — and equitable — tax brackets of the 1960s and 1970s) some people’s knee-jerk response is to cry about “killing jobs,” and “class hostilities.”

        There has indeed been a “class war” going on this country in recent decades, but I can tell you that it certainly has not been the poor and working classes who have been on the offensive.

      9. Posted May 27, 2010 at 10:25 am | Permalink

        This is a bad infographic for a good proposed change.

        EOS & Peter: Why shouldn’t hedge fund managers have their income taxed under the income tax, just like everyone else? It seems to me that billionairre hedge fund managers should be treated the same as billionairre CEOs, etc. for tax purposes. We can legitimately argue about what the tax rates should be, but I don’t see a very strong argument for continuing to tax hedge fund managers at a lower rate simply by virtue of what they do. For everyone else, tax rates are based on income (less deductions, credits, etc.), not career.

      10. Robert
        Posted May 27, 2010 at 11:39 am | Permalink

        Is MoveOn seriously suggesting the average hedge fund manager makes over 1 billion dollars per year?

      11. Robert
        Posted May 27, 2010 at 11:44 am | Permalink

        Oh, wait, I see it now. It is the “Top 25″ hedge fund managers. Hey, how come they didn’t just put the average incomes of the top 25 earning doctors and teachers and the rest? MoveOn has a bunch of dumbasses doing their PR campaigns. Were they the ones that called David Petraeus, General “Betray Us?” They’re real assholes.

      12. Clint McFaddon
        Posted May 27, 2010 at 2:30 pm | Permalink

        Fuck ‘em. Good infographic or not.

      13. Peter Larson
        Posted May 27, 2010 at 6:52 pm | Permalink

        “EOS & Peter: Why shouldn’t hedge fund managers have their income taxed under the income tax, just like everyone else?”

        I take great offense at being put into a boat with EOS. I didn’t realize that this poor graphic was about hedge fund managers.

      14. The Exterminator
        Posted May 27, 2010 at 7:59 pm | Permalink

        I make about $28,000/year, with no benefits, and I really don’t get mad about rich people being rich. I spray their houses, I realize that they worked their asses off, in general, studying stupid business crap, stressing about stupid work crap, investing and day-trading about stupid stock crap, and generally giving more of a damn about getting money than I do. I work hard in a somewhat more hazardous job than the average office jockey, but essentially I don’t stress as badly as they do about getting more money. So, they earned it. I could earn it too if I did the same crap as them, but I don’t feel like it, so I don’t get it. Seems fair to me. This class envy crap is retarded. Why should rich people be forced to pay for my stuff?

      15. Peter Larson
        Posted May 27, 2010 at 8:37 pm | Permalink

        Because they drain more in services than you do. Wealthy people depend on businesses, which depend on employees, who need education and health care. They need roads to ship product on, infrastructure to support communications, utilities and travel. Police force to make sure that localities where employees live is safe. Basically, they don’t get a freed ride, but the extra taxation assures that the conditions exist to promote prosperity.

        I’ve been to places where those conditions do not exist and wealthy people don’t have to pay. Trust me, it sucks for everyone.

      16. The Exterminator
        Posted May 27, 2010 at 8:47 pm | Permalink

        That sounds like a hilarious lot of bullshit.

      17. Posted May 27, 2010 at 9:13 pm | Permalink

        Bill Gates Senior wrote a book suggesting that the rich, across the board, don’t pay enough in taxes. He’s of the opinion that they benefit more than others from the U.S. infrastructure, and I’m inclined to believe him.

        Here’s the book:
        Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes

      18. Posted May 27, 2010 at 9:15 pm | Permalink

        And I’d agree that the infographic isn’t perfect, but I think that it does a pretty good job of conveying the gist of it.

      19. Peter Larson
        Posted May 28, 2010 at 6:06 am | Permalink

        Am I the only person whose tired of hearing how wealth equals “hard work”? By that logic, single mothers working 3 minimum wage jobs should be the wealthiest demographic in the country.

      20. Knox
        Posted May 28, 2010 at 6:08 am | Permalink

        Amen, brother Pete.

      21. Knox
        Posted May 28, 2010 at 6:10 am | Permalink

        And did anyone else notice that the doctor is at a perfect height to fellate the hedge-fund manager?

      22. The Exterminator
        Posted May 28, 2010 at 7:43 am | Permalink

        I work hard too. It’s not the hardness of the hard work, it’s the “smartness” of the hard work , if your goal is wealth. Stressing about stock market crap etc. is more wealth-producing than carrying a 4 gallon sprayer of poison on your back in the 85 degree heat, climbing around on roofs. And yes, they do stress.

        How much do you make, Peter? Do you get benefits?

      23. Clint McFaddon
        Posted May 28, 2010 at 8:30 am | Permalink

        Inheriting a company doesn’t make you smarter, dumb ass.

      24. Peter Larson
        Posted May 28, 2010 at 8:32 am | Permalink

        I’m poor (30K) and have great benefits (all medical with nearly no copay) as a student. However, upon graduation, I will likely more than double your income and could, if I wanted, triple or quadruple it within five years. Money is not my goal, however.

        Why? Because I’m white, was able to go to a private preparatory school for free and my father was an academic. It had nothing to do with how much I stressed about stock market crap nor with the “smartness” of my work. Any person with the same set of opportunities could do the exact same thing.

        However, a poor woman from the Mississippi delta who had little access to decent schools will have few opportunities and thus the chances of breaking the cycle of poverty will be much more difficult. She will be lucky if she even reaches middle class. Similarly, poor white folk in Appalachia have little opportunities for advancement. At best, they might be able to get a job in a coal mine, again due to lack of access to infrastructure that will give them skills to do anything else, infrastructure which is ideally paid for by people with more money than the average Joe.

        Wealthy people become wealthy for a number of reasons, it could be education, inheritance or merely being in the right place at the right time. It has little to do “stress”, “smartness” or “hard work”. I’ve known lots of wealthy people that are complete lazy dumbasses and lots of poor people that are intelligent and work themselves to the bone.

      25. Peter Larson
        Posted May 28, 2010 at 9:31 am | Permalink

        Although I am positive that the Exterminator will not read it, I would suggest that he read up on social and economic mobility in the US. It’s pretty depressing, to be honest. The old addage “you will most likely end up just like your parents” is very true in the present day US:

        http://www.americanprogress.org/issues/2006/04/b1579981.html

        Agreeably, this is from a left leaning website, but I don’t think that diminishes the power of the statements contained in their report.

      26. Glen S.
        Posted May 28, 2010 at 10:17 am | Permalink

        “It has little to do “stress”, “smartness” or “hard work”. I’ve known lots of wealthy people that are complete lazy dumbasses and lots of poor people that are intelligent and work themselves to the bone.”

        Um … so isn’t this a great argument for why the very wealthy should be taxed at a higher rate?

      27. Meta
        Posted May 28, 2010 at 1:44 pm | Permalink

        Hillary Clinton is quoted today as saying the rich don’t pay their share:

        During a conference at the Brookings Institution on national security, the nation’s top diplomat bluntly aired her own views on the nation’s tax policies, saying she feels “the rich are not paying their fair share.”

        “The rich are not paying their fair share in any nation that is facing the kind of employment issues [like the U.S.] – whether it’s individual, corporate or whatever the taxation forms are,” Clinton said after clearly stipulating that these were her opinions, no those of the Obama administration.

        more:
        http://politicalticker.blogs.cnn.com/2010/05/28/clinton-rich-arent-paying-fair-share/?fbid=hBbOVUCrb1l

      28. The Exterminator
        Posted May 29, 2010 at 8:55 pm | Permalink

        How does any of that mean that you have any claim on rich people’s money? Did they steal it from you? No? Then quit coveting other people’s shit, or everybody here who makes more money than me has to pay my bills.

      29. Samuel NB
        Posted May 29, 2010 at 11:12 pm | Permalink

        When I look around at all the tax funded stuff I use and have used, public schools, fire, police, roads, parks, national defense, I’m humbled knowing that I get more out of the system than I put in. But I’m also proud that one bullet in a cop’s gun, one page of a teacher’s text, or one pebble of asphalt, maybe my hard work helped pay for. Even if I’m getting more than I give I like knowing that I’m doing my part.

        I know there’s folks out there earning less and paying less. I don’t see how it’s possible or right for people making half or less what I do to try to pay what I pay in taxes. There’s just no way they could unless we expect them to pay taxes until they starve. I don’t resent them. I hope folks who make more than me don’t resent me, maybe they do.

        I’m just trying to make sense of what The Exterminator is saying which sounds like everybody should be given the same tax bill for services used? I guess I’m missing something?

      30. kjc
        Posted May 30, 2010 at 8:18 am | Permalink

        “Did they steal it from you?”

        Um actually…

        Mr. Exterminator, have you read the news in the last couple years? Just wondering if you know what banks and hedge fund managers have been up to instead of just “working hard”.

      31. Peter Larson
        Posted May 30, 2010 at 3:04 pm | Permalink

        Maybe he doesn’t know that the haves have been working hard at stealing from the have-nots since time immemorial.

      32. The Exterminator
        Posted May 30, 2010 at 3:14 pm | Permalink

        kjc, your reps voted to give them the public’s money, contrary to the Constitution, if the bailout is what you’re referring to. Who’s the real thief in that scenario? Your reps, that’s who.

        Explain to me otherwise how hedge fund managers and banks stole it from you, and how much of your money they stole. Maybe you should press charges. I’m all ears if you have a valid point.

        What I’m saying, Samuel, is that rich people in no way have more of a responsibility to pay your water bill than you do, just because they’re rich. It’s not okay to covet the fruits of someone else’s labor by wealth redistribution, even if it is popular. The poor aren’t in the right just because they’re poor, and the rich aren’t in the wrong just because they’re rich. I’ve still yet to meet a rich person who didn’t earn their wealth, or a poor person who didn’t earn their poverty, including myself.

      33. Peter Larson
        Posted May 30, 2010 at 4:33 pm | Permalink

        I think Exterminator needs to watch this:

        http://www.youtube.com/watch?v=E8EZW7-NSNI

      34. kjc
        Posted May 30, 2010 at 5:09 pm | Permalink

        “rich people in no way have more of a responsibility to pay your water bill than you do”

        this is the dumbest possible denominator.

        i think i’m happy that you don’t find my points valid. i’d be worried.

      35. Peter Larson
        Posted May 30, 2010 at 5:32 pm | Permalink

        I think Exterminator should come with me to South Africa.

      36. The Exterminator
        Posted May 30, 2010 at 9:33 pm | Permalink

        So, it just boils down to you thinking rich people should have to pay for your stuff. You covet wealth you didn’t earn. Maybe they didn’t “earn” it in your eyes (though they still have more right to their forebears’ wealth than you do… their forebears didn’t earn it all to give to you, but to their descendants, or else you would have been in the will), maybe they did earn it, but they didn’t actually steal what’s yours, and you DEFINITELY didn’t earn it.

        So, boiled down, your philosophy is just covetousness disguised as charity, usurpation disguised as legitimate authority, and immorality disguised as morality. Your philosophy is morally bankrupt, and eventually becomes economically bankrupt.

      37. The Exterminator
        Posted May 30, 2010 at 10:17 pm | Permalink

        Why do I get the feeling that a higher tax rate for rich people wouldn’t cure South Africa’s problems.

        This is one working class slob that doesn’t buy your cushy liberal guilt bullshit for a second.

      38. Peter Larson
        Posted May 30, 2010 at 11:12 pm | Permalink

        Actually, SA’s taxes are much higher than ours, but resource allocation is miserable.

        You would like it, however. People who have money don’t have to pay the water bill for all the lazy people who don’t.

        No guilt. That’s the way it used to be here. It didn’t work.

      39. Tim
        Posted June 25, 2010 at 9:54 am | Permalink

        Senator Bernie Sanders from Vermont introduced legislation to restore the estate tax. We all need to call our senators and make sure that they’ve voting to support it.

        http://rawstory.com/rs/2010/0624/senator-reintroduces-legislation-shift-tax-burden-billionaires/

      40. Kim
        Posted June 25, 2010 at 1:25 pm | Permalink

        Good for Sanders. I wish that Levin and Stabenow had the balls.

      41. Vin Scully
        Posted June 26, 2010 at 12:30 am | Permalink

        Yeah. Fuck taxes. They are intrinsically unfair.
        Oh wait…Wrong website.
        Raise the gas tax!
        That is more like it.

      42. Posted June 27, 2010 at 8:36 am | Permalink

        Like them or not, taxes are necessary, and it doesn’t seem absurd to me to suggest that the rich pay their fair share. And, as I believe Ben Franklin once said, there is no tax more just than the estate tax.

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