Weekend Reading

Fox News Host: What About Trump Destroying Top Secret Documents?

Enough With 'Smart Cities'—We Need Cities Done Right

The science behind Ja Morant's unreal vertical abilities

Man crashes pastor’s book burning event — throws a bible into the fire and yells: ‘Hail Satan!’

These Abandoned Olympic Venues Prove the Games Are a Giant Waste of Money

When Private Equity Becomes Your Landlord

Unions don’t call the shots any more – but we’d all be better off if they did

Sunday Reading

Why Private Equity Firms Like Bain Really Are The Worst Of Capitalism
Supply-Siders Still Push What Doesn't Work
The U.S Is The Sick Man Of The Developed World
Celebrating Greenspan's Legacy Of Failure
More Minimum Wage Distraction, Stuart Varney Edition
John McCain Is The Perfect American Lie
30 Firms Earn Half Of The Total Profit Made By All U.S. Public Companies
S&P 500's Biggest Pension Plans Face $382 Billion Funding Gap
Democrats Are Finally Waking Up To The Monopoly Problem
A New Deal For Wall Street

Who Will Save The Hedge Funds?

It's great to offer two sides to a story, broadly speaking. But some stories just aren't true. For some odd reason, the Journal Sentinel thinks these stories still need to be told. Myth making at its worst; great job Journal!

I'm referring here to a recent opinion piece in the Journal from Brett Healy, president of the MacIver Institute, and Patrick Gleason, director of state affairs of Americans for Tax Reform - Bipartisan push for higher taxes trouble for Wisconsin companies. 

They are particularly upset over the possibility of "raising taxes on capital gains, particularly capital gains earned by private equity fund managers, commonly referred to as carried interest."

Who will save the hedge funds?!

They make unsubstantiated and dubious claims about the economic impact of private equity firms, followed by the well-worn double-taxation whine.

Capital gains taxes are a type of double taxation, and investment income taxes are among the most economically damaging forms of taxation.

Yes, taxing people for making money off of other money is so mean.

Also, the attempt to raise taxes on carried interest is the first step toward the long-held progressive goal of taxing investment income at the higher rates at which wages are taxed.

So, inherited wealth, which is often simply reinvested to achieve capital gains, should be taxed at a lower rate than income earned by people whom are actually working, building and doing something?

Proponents of raising taxes on carried interest often talk about tax parity and fairness, but note they never want to reduce wage income tax rates to the lower capital gains rate in order to achieve this. That's because the goal for most of those targeting private equity is to raise taxes on net in order to grow the size of government.

No. You can't reduce income taxes to lower the capital gains rate because we wouldn't be able to fund government. It's not about growing the size of government. It's about living in a civilized society with a working and equitable infrastructure. We need Social Security, Medicare, roads, bridges, trains, airports, fire fighters, police, parks, museums, universities, a military, and on and on. It's about paying the bills to assure our quality of life.

President Obama has reduced deficits and decreased the number of federal employees. That's leaner and meaner, not growing.

Yet, for this conservative, pro-business cabal, taxes can never be low enough on the wealthy, and the working masses should just get used to going without.

The belief that keeping the tax burden as low as possible promotes economic growth is supported by a large body of research.

Again. NO! Research, and the U.S.'s experience since the 80s, indicates the exact opposite of what the authors claim. Low rates have lead to slower growth, increasing income inequality and rising deficits.

As Dean Baker discusses:

...the desire to lower the tax rate on capital income as stemming from a desire to reduce "double taxation." The logic of this argument is that profits are taxed at the corporate level, so when they are taxed again at the individual level when they are paid out as dividends or lead to capital gains, this amounts to "double taxation." 

The problem with this logic is that the government gives individuals something of enormous value when it allows them to create a corporation as a legal entity. A corporation enjoys a wide range of privileges that these people would not have as individuals, most importantly that it allows them limited liability. This means that the individuals who own shares in the corporation are not liable for any harm the corporation may do beyond the value of their shares. 

We know that limited liability and other benefits of corporate status have great value because people choose to incorporate. They would not do so, and save themselves from having to pay the corporate income tax, if they didn't think the value of corporate status exceeded the burden of the tax. In this sense, the corporate income tax is a 100 percent voluntary tax, people opt to pay it in order to get the benefits of limited liability.

There is one other point that would have been useful to include in this discussion. Taxes affect the before-tax distribution of income insofar as they allow for a lucrative tax avoidance industry. To a large extent the private equity industry, which has created rich people like Mitt Romney and Peter Peterson, is about devising ways to raise corporate profits through tax avoidance. This is an important cost associated with having an excessively complex tax code. That is an important point that is always necessary to keep in mind in any discussion of the tax code.

The economic havoc that has been the Scott Walker administration is in part due to the fact that they have followed the playbook of the Healys and Gleasons of the world. Political apparatchiks whose proclamations have been debunked long ago. They can keep repeating their dead ideas (which has been going on for decades now), but we don't have to keep listening to it.

A bit of an aside: in the article, Healy and Gleason use $68 billion for the amount invested in Wisconsin by private equity since 2003, they claim this is an economic windfall for the state. Yet, later in the article, "Obama's budget indicates that this damaging tax increase would raise just over $2 billion per year in additional tax revenue, which is basically a rounding error in a more than $3 trillion federal budget." So, Obama's increase would raise $2 billion, which is just a rounding error. But private equity's roughly $5 billion per year investment in Wisconsin is an economic game-changer.

For Further Reading:

Fox Still Wrong About Income From Capital Gains: It's Still Income

Warren Buffett Is Right, the Wall Street Journal Is Wrong
Raise Capital Gains To Lower Income Inequality

From Investopedia:

Capital gain is an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price. 2. Profit that results when the price of a security held by a mutual fund rises above its purchase price and the security is sold (realized gain). If the security continues to be held, the gain is unrealized. A capital loss would occur when the opposite takes place.

Weekend Reading

10 Facts You May Not Know About The Federal Budget
Richest 1% Own Half Of Global Wealth
The Unfinished Suburbs Of America
The Folklore Of Finance
Scott Walker's Food Stamp Drug Testing Plan Is Illegal & Unconstitutional
Does It Pay For Firms To Invest In Their Workers' Wellbeing?
Two Weeks After Election, Walker Preparing For Presidential Run
How ALEC Turns State Election Wins Into Laws
Behind Private Equity's Curtain

Government: The Mother Of (Much) Invention

Government - Not Business - Has Been The Source Of Breakthrough Innovation

The New York Times obituary for Douglas C. Englebart, identified as the “Computer Visionary Who Invented the Mouse,” is fascinating reading, in part because Englebart, an Oregon farm boy, was in many ways the father of modern networked computing. Beginning in the early 1960s, he put together a team of engineers and computer scientists, funded by the federal government, that developed a prototype for most of the computer tools we all take for granted today...

Mariana Mazzucato, a professor of economics at the University of Sussex, has been making the point very effectively in lectures and a new book, The Entrepreneurial State, that the real innovation engine in the global economy is not business, nor the market, but the government. A recent story about Mazzucato in Forbes cites her view that long-term, patient capital–provided by government–is the absolute prerequisite for breakthrough innovation.

“Her case study for myth-debunking is the iPhone, that icon of American corporate innovation. Each of its core technologies–capacitive sensors, solid-state memory, the click wheel, GPS, internet, cellular communications, Siri, microchips, touchscreen—came from research efforts and funding support of the U.S. government and military."

The Romney Files

The Federal Bailout That Saved Mitt Romney
The Hiring Of The President
History Shows Business Experience Doesn't Make A Good President
Impacts Of The Romney Budget Proposals
Inside Romney's Tax-Dodging Schemes
The Meaning Of Mitt
Mitt Romney
Mitt Romney & The Fantasy Budget
Romney's Budget Proposals Necessitate Large Cuts
The Romney Plan
Romney's Private Equity Magic Trick
Transaction Man
The True Story Of Mitt Romney & Bain Capital

Midweek Reading

Americans Like Federal Spending After All
Americas Long Slope Down
Declining Labor Share & The Global Rise Of Corporate Savings
The Hidden & Excessive Costs Of 401(K)s
Macroeconomics: What Is It Good For?
Private Equity: Heads We Win, Tails We Win
Real House Prices & Price-To-Rent Ratio
Scott Walker's Victory, Un-Sugar-Coated
The Scott Walker No Tax Increase Lie
Walkergate: The Russell Revelations

Sunday Reading

Comparing Recessions & Recoveries
Dissecting Romney's Statement
Fantastic News On Jobs
It Pays To Be Rich
Koch Brothers & Allies Pledge $100 Million To Beat Obama
The One Percent Versus The Twenty Percent
Private Equity & "Job Creation"
Rachel Maddow Mocks Mitt Romney
Romney's Gift From Congress
Soaking The Poor, State By State
Why Don't We Pay People Enough?
Why The GOP Should Stop Invoking Reaganomics
Why The Super Bowl Is Socialist

Sunday Reading

Bad Year For Wall St. Not Reflected In Chiefs' Pay
Destructive Austerity, USA
Distorting Facts On Keystone XL
Fortune 500 Companies That Lobby & Avoid Taxes
How Conservatives Lie About Government
How The Great Recession & The Slow Recovery Compare Historically
How The U.S. Lost Out On iPhone Work
Milwaukee Gets Arty In The Third Ward
No, Doctors Don't Hate Obamacare
Private Inequity
Reformers Playbook On Failing Schools Fails A Fact Check
The Right To Work Assault On The Middle Class
Top Marginal Tax Rates: 1916-2010
Walker: "We're Heading In The Right Direction."

Equity Illusion

From The Equity Culture Loses It's Bloom:

• In the 1970s investors...held conservative portfolios that were heavy on bonds...The advent of individual retirement accounts and other defined contribution plans would change that in the coming decade. In 1985 individuals held $750 billion in IRA and DC plans; by the market peak in 2007, that number had rocketed to $9.2 trillion.
• The Standard and Poor's 500 index soared from 131.05 to 1,565.153, or 1,194 percent.
• As of September 30, long-term Treasury bonds had beaten U.S. stocks over the past 28 years.
• "Equities depend on capital gains, but income-producing assets, such as infrastructure, are pretty reliable through different economic cycles," notes David Richardson.
  

Sunday Reading

ACORN: Federal Governments Best Investment
Affordable Housing Innovations
Economics of Models
Ending LEEDs Monopoly
High-Speed Rail: A No-Brainer
Midwest Has Highest Per Capita Rate of Iraq War Fatalities and Casualties
On Endless Growth
Owners No More
Perils of Waterfront Development
Private Equity Vultures
Problems With Securitization
Too Politically Connected To Fail In Any Crisis
Transport of Tomorrow
Whitopia