…and gives Congress a glimpse of the silver tuna. Want to see the full enchilada? The golden goose? The cast-iron baby arm? El Chorizo? Then you’re gonna have to get some other deep pocketed guys and gals to show what kind of heat they’re packing. You do that and WB promises he’ll give you the full autopsy results. Those are the rules. No tit? No tat. If anyone thinks he’s going to be the only one left standing naked, they can refer themselves to a fateful game of strip poker in ’57 from which he learned his lesson the hard way, and think again. Read more »
“As one of the people who will be directly affected by the proposed new rules, let me say that I wholeheartedly endorse them,” says George Soros of carried interest and Obama’s proposed Buffett rule, which would force those making more than $1 million to pay at least as much federal income and payroll taxes as those who make less. [AR]
Oracle Of Omaha Was Saving ‘Buffett Rule’ To Describe Phenomenon Wherein Hot Young Things Are Attracted To Sagely Grandfather Types But Sure, You Guys Can Have This OneBy Bess Levin
Warren Buffett says he’s absolutely “fine” with President Obama calling the new plan to establish a minimum tax rate for individuals making more than $1 million a year the “Buffett Rule.” Reached Sunday in Omaha, Nebraska, the outspoken billionaire said the administration “asked me if they could use my name (on it) and I said, ‘Sure. It’s what I believe.’” [FBN]
Maria Bartiromo has a stimulus plan of her own. But it’s a plan to stimulate the selling of assets instead of consumer spending. If you’ve got stocks or homes you want to sell, you should probably sell before Barack Obama gets elected, she seems to say to Avenue.
Today Page Six reports that the Money Honey warned about higher taxes if the Democratic nominee gets elected. “He’s going to take the capital gains tax at 15 percent right now all the way up to 25 to 28 percent,” she says. “Sell anything, like a home or stocks, and make a profit . . . [almost] 30 percent of the profit will go to the government instead of 15.”
Barack’s Bite [New York Post]
We spent some time this morning talking about the myth of the always applicable Laffer curve and the supply-sideristas who always claim that tax cuts will be off-set by revenues from greater economic productivity. But we’re not Alan Greenspan—who famously doesn’t think it’s his job to think about how his comments on economic matters are perceived. So we don’t want our lack of enthusiasm for the great Republican myth to be construed as support for the great Democratic myth.
Perhaps you haven’t heard much about the great myth that seems to be the animating economic idea behind the Democratic party at the moment. You’ve heard the myth in various forms, of course, but it is rarely presented in terms on which it can be identified, analyzed and critiqued. Instead, it’s presented as nothing other than the obvious truth.
To put it succinctly, the myth is that increases in tax rates and higher tax revenues reduce budget deficits. Like the supply side faith, this one begins with a kernel of truth—that, all things being equal, higher revenues would reduce budget deficits—and then warps it into a poisonous lie. The mischief comes from the fact that all things are never equal, and there is little evidence that higher revenues results in lower deficits.
What is particularly not equal here is government spending. The myth of deficit reducing revenues depends on something that is patently untrue: the assumption that the demand for government spending is inelastic. In other words, when the government collects more revenues it tends to spend more.
What truly limits government spending is the size of the budget deficit. Or, more precisely, the political tolerance for budget deficits. It is the size of the deficit that is fixed, not the level of government spending. When you grow revenue, you grow spending, and the budget deficit chugs along.
This is not to say that it is impossible to reduce budget deficits. We’ve reduced them in the past, and even achieved something like a surplus at times. But this has been an achievement in politics—a political demand for lower deficits that overcame the demand for more spending—and not a function of revenue collection.
So before deciding that Republican proposals for tax cuts are irresponsible and Democratic proposals for tax hikes are responsible—that is, deficit reducing—ask yourself whether or not you think the demand for government spending is likely to increase or decrease when the government receives that added revenue.
The economist Murray Rothbard believed that the Laffer curve was one of the great myths of the Reaganite right, distorting Republican economic policy and distracting Republicans from the goal of reducing the size and scope of government. It was an economic idea that could be explained on a cocktail napkin, so it appealed massively to politicians and propagandists. And it contained an important kernel of truth. But there have always been serious problems with the way it was used by supply siders.
“It is true that if tax rates are 99%, and they are cut to 95%, tax revenue will go up,” Rothbard wrote in Making Economic Sense. “But there is no reason to assume such simple connections at any other time…People are not going to stop working or leave the country because of a relatively small tax hike, or do the reverse because of a tax cut.”
He could list off a half dozen problems with the claims of supply siders about the Laffer curve. But the most devastating was this one: they had no metric for showing where we were on the curve at any given time. And yet this never stopped them from always claiming we were on the diminishing tax-revenue side of the curve, regardless of what the marginal tax rates were at the time.
And apparently the great myth of the Laffer curve remains central to conservative orthodoxy. The long-legged and razor smart Megan McArdle of Asymetrical Information reports that she recently had a book review spiked by a conservative magazine because she had written that the Laffer curve didn’t apply to American levels of taxation. “The Laffer curve and the supply siders pushing it seem to be the teacher’s unions of the right,” McArdle writes.
Now we’re not sure that she’s right when she claims that the Laffer curve doesn’t apply to current levels of taxation. But we’re not sure she’s wrong, either. As we’ve said, there’s never been a plausible metric for figuring this out except in the most extreme cases, which renders the Laffer curve useless as a predictive model.
More importantly, there are probably many Laffer curves operating in our economy at any point because there are many kinds of taxation. Income taxes. Corporate taxes. Capital gains taxes. Excise taxes. Sales taxes. Because these are set at different levels and hit at different points in our economy, we may well be on the left side of the curve for some taxes and the right on others.
In any case, it’s distressing to see the closing of the conservative mind to economic debate. No wonder those Republican presidential hopefuls were so terrible in the Michigan debate.
I take it all back [Asymetrical Information]
Stephen Schwarzman sits in front of the breakfast table.
It’s not just any breakfast table. It’s the most important breakfast table in the world. It was built for John F. Kennedy by an Italian marble worker who died mysteriously during the cold war. Kennedy never ate at the table, however. He was assassinated too early. Later it was acquired by Nancy Reagan for her husband, the former President. But he also died before he could eat breakfast at the table.
It made Schwarzman happy to know that among these powerful men, only he had eaten at the table. He. Stephen Schwarzman of Philadelpha, the man who had come from nothing and become something. No, not “something.” Who had become everything. And not “become” but made himself. The man who had made himself into everything.
A servant silently glides across the polished floors of the most important breakfast nook in the world. A moment of irritation passes across Schwarzman’s face. He has barely touched his crab salad. There is at least $320 worth of crab still on the plate. There is also kiwi, and grapefruit and a spice from Thailand that is unavailable in the United States. It was a gift from the third most powerful man in China. If this servant touches his plate, Schwarzman will fire him. Why are they always touching his plate before he is finished?
The servant isn’t here for the crab. He is carrying a phone on a silver plate. He doesn’t say a word. Schwarzman lifts the phone, flicks it open. He makes a mental note to fire whoever is calling during his breakfast.
“You’re reading that story in the Journal about winning another year to fight the private equity tax, right?” the voice of his chief lobbyist does not sound as happy as it should. Schwarzman was reading that story. “Look. Forget it. Although Senate Majority Leader Harry Reid has declared the private equity tax hike dead in the Senate, there’s still a chance that an even harsher tax hike could work its way into a bill to reform the alternative minimum tax.”
Schwarzman chews a bit of crab but doesn’t say anything.
“Do you have the New York Post?” the lobbyist asks.
“Who the fuck do you think you are talking to?” Schwarzman says, tiny bits of crab escaping from his lips.
“Here’s the deal. The house proposal raises the tax on carried interest to 38 percent. The Senate will have a lot of political pressure to act on this AMT patch and a carried interest bill could be one palatable way to offset the revenue hole they need to fill. We can still probably get rid of this thing. But the house is harder to fix. So many more of the buggers. We’ll have to spread the love around a bit,” the lobbyist says.
Schwarzman coughs. He hangs up the phone and puts it on the plate. Looking back at the crab, he quickly calculates what 38% of the government’s take of his breakfast would be. Then he eats that portion in one forkful. For a moment his mind flashes back to the family store in Philadelphia, to his job folding towels. They would like that, those Democrats. They would like to see him back in Phildelphia, folding fucking towels, he thinks.
The servant turns quickly and walks across the room. There’s a slight squeaking noise as his soft, rubber soled sneakers hit the the floors. Schwarzman makes a mental note to fire him.
Law Still Might Be Taxing for The Rich [New York Post]
Senator Schumer plans to introduce legislation to raise taxes on private equity executives, hedge fund managers and a slew of other rich people. “My intent is to raise the most revenue and do it in a fair way,” Chuck said. “My bill will certainly raise the taxes on people who not get 15 percent for carried interest, for sure.” Though he did not share whether or not the individuals currently privy to paying only 15 percent on carried interest would have to pay 35 like normal people, he did suggest that the political wisdom that says you can’t raise taxes on the wealthy—which Schumer referred to as “old bugaboo”—is no longer valid.
In the past, Schumer’s been against any proposals that he felt unfairly singled out minorities (women, blacks, private-equity firms, hedge funds), by stripping them of their right to keep more of their money than other people. Now he claims to want to “treat everyone across the board,” and says he isn’t afraid to raise taxes on the rich in order to level the playing field. The only thing he may be afraid of is not getting an invite to Jim Chanos’s next 4th of July clambake, the last one at which he was heard saying “I’m still thinking about it,” re: taxation on HF managers and “I’ve never gotten why people would want to eat mussels. There’s too much work involved, too labor intensive. I don’t want to be breaking a sweat while I’m eating.”
Schumer Says He’ll Sponsor Tax Rise on Fund Managers [Bloomberg]
There’s a lot of bitching and moaning going on, of late, about how hedge fund mangers like James Simons and private equity giants like (OXYMORON ALERT:) Stephen Schwarzman* make too much money. But bitching and moaning on their own only go so far, which is why, every once in a while, there has to be a report that gives a little weight to the “it isn’t fair” argument that Schwarzman earned one hundred billion dollars last year and our compensation is one belly rub per post (and a scratch behind the ears for every “after the jump,” because page views = money, people).
Today’s (essentially) scientific study comes courtesy of the Institute for Policy Studies (IPS) and United for a Fair Economy. It found that in 2006, the top 20 hedge fund and private equity bosses (Simons, Cohen, Griffin, Schwarzman, Kravis, etc) earned an average of $657.5 million, versus the $29,544 average raked in by U.S. workers. This translates to the former making 22,255 times that of the latter. But, obviously, that’s not the best part. The report notes that the discrepancy between the two groups “dwarfs”—that’s a direct quote—the discrepancy between CEOs and workers (corporate execs, on average, earn a measly 365 times that of U.S. workers). Actually, no, that’s not the best part, which is the statistic that last year, the Top 20 earned more money in ten minutes than U.S. workers made the whole year. The blatantly passive aggressive subtext here is that there’s something wrong with this.
Douglas Lowenstein, president of the Private Equity Council reminds us that “Income disparity is an important issue, but studies driven by sound bites don’t advance a national debate about how our nation should respond” and, personally, as people who are practically deaf when it comes to sound bites, we think he’s dead right. Hedge fund lobbyist John Gaine, of the Managed Funds Association, notes that HF compensation is “fee-based and directly attributable to…performance.” Also right. Sarah Anderson, a director at IPS, decidedly not assisting us in our quest for a hat trick, criticizes the gap, and argues that Congress ought to increase the tax on private equity firm’s earnings from 15% to 35%.
Rather disturbingly, there seems to be a growing contingent in this country that agrees with Ms. Anderson. Individuals and groups who take issue with what they subjectively regard as astronomically bloated pay. People (Ben Stein, the New York Times) who have a “problem” with the so-called tax “loophole” (which, if you take off your shades of cynicism for a moment, will see is actually just a “business model”), open only to managers, and not ordinary Americans.
Thankfully, an organization known as SHAME (Southampton Alliance for Monied Estates) has its head on its shoulders and knows that hedge fund and private equity managers aren’t just like you and I—they’re better, and should be compensated and taxed accordingly. Yesterday, SHAME, in association with Concerned Neighbors of Henry Kravis, took to the streets and demanded more tax breaks for private equity kings. Rallying around Kravis’s mansion, SHAME called on Congress to let the KKR boss and other buyout billionaires with homes in the Hamptons to keep the 15% tax they’ve long come to enjoy. SHAME sang slogans like “protect the emerging plutocracy.” SHAME told DealBook, “We’re out here to help save our local neighborhood billionaires.” SHAME passed around a petition and encouraged people to defend the rights of a contingent of people that so obviously cannot defend itself.
John Carney, discussing SHAME’s motivations on the eve of the rally [CNBC]
Union takes LBO protest to Hamptons [Reuters]
Buyout Tax Debate Hits the Hamptons [DealBook]
Cash of the titans: Criticism of pay for fund execs grows [USA Today]
*I will be here—KILLING—all day.
Are you rich? Do you want to stay that way? You are not alone. In a groundbreaking new study, the Wall Street Journal found that the 11 private equity firms that comprise the Private Equity Council are giving more money to the leading Republican presidential candidates than the Dems. Since January, Rudy Giuliani, Mitt Romney and John McCain have received $262,000 from employees of Carlyle, KKR, Blackstone, etc, versus the $231,000 thrown at Clinton, Obama and John Edwards.
The numbers represent a reversal (since 2000) from previously pro-Dem P.E. managers. What’s the impetus behind the shift? A silent message to Hill: “Bring back the headband or we’ll light this dog on fire (/not give you money, and so forth and so on)”? A newfound respect for Mitt Romney, the Porn King of the Bay State? The realization that thing just feel “so right” between you (Schwarzman, Kravis, et al) and a guy who likes to dress in drag? The desire to elect a president who prefers the number ‘15’ to the number ‘35’? It’s probably one of these things. Your guess is as good as ours (and our guess is Rudy in a mumu, if you must know).
Private Equity Gives More to Republicans [WSJ]
With regard to a House bill that would swap the much-loved 15% tax rate loophole for a staggering 35%, White House flak Tony Snow said Wednesday that Bushie will veto any and all attempts to increases taxes on hedge funds y buyout firms. Snow, never afraid to go where no one else will, noted that “This is not an administration that’s predisposed toward tax increases.” This bill is separate from the one aimed at Blackstone, Fortress, et. al., though similar in nature, and one that Treasury chief Hank Paulson believes would have “unintended consequences on capitalism,” namely that the mind-blowingly rich would have to let some of its hired help go.
Bush Attacks Tax [New York Post]