Carried Interest is Not A Problem

by | ARTICLES, ECONOMY, OBAMA

John Steele Gordon’s recent Op-Ed in the WSJ opened with following observation: “The question of how to fairly and equitably tax capital gains has been a political problem since the modern personal-income tax was adopted in 1913”. Being a business/financial historian, he gives an adequate overview of the history of capital gains and how it has reached its present state.  But because he is not an economist or CPA, he disingenously presents a one-sided treatment of the issue of capital gains and “carried interest” without actually exploring the merits of the tax. The result is that Gordon sounds like sour grapes on the wealthy and ultimately, he is wholly unable to answer his own question.

Gordon puts forth the notion that “carried interest” is a “cause of much recent controversy”. This much is true, in that the recently defeated Baucus/Grassley bill was attempting to “fix” carried interest because of a seemingly unfair low-tax capital gains income rate.

This is true. But so what? It’s not as though the income isn’t from capital gains. If the law was changed so that the operators were taxed at ordinary income only, it wouldn’t get rid of those gains — it would simply mean that the investors get the benefit of the capital gains lost by the operators. This fixes nothing.

Ultimately such a change, which is again being explored in Obama’s proposed budget,  will merely shift the tax benefit from the operators to the investors. This takes a tax break away from people who are working for a living and gives it to millionaires who are just investing – pure hypocrisy from liberals who wish to inflict additional taxes on the wealthy at every step.  It make compensation deals for hedge fund operators a bit more complicated (i.e. requiring more assistance from accountants), but the amount of compensation stays revenue neutral.

Therefore, it takes a whopping dose of either incompetence or disingenuousness from Gordon and other carried interest critics to look at the hedge fund industry and proclaim that the hedge fund operator “carried interest” is the problem that needs to be addressed.

Ferrara on Obama’s Budget: A Must Read

by | ARTICLES, ECONOMY, OBAMA

Peter Ferrara pens a fantastic Op-Ed in Forbes this morning. He documents the myriad inaccuracies claimed by the Obama Administration regarding his new budget, the staggering amount of spending contained therein, and the additional taxes to be levied.  He also does some cost comparison to Ryan’s budget and dispels the myth of the tax cut vs tax credit, (a point I have made many, many times as a CPA), and discusses the problems with Obama’s treatment of entitlement reform.

Some of the highlights include:

• No reduction in spending, even net reduction from expected increase in spending.
• Cancels sequestration
• “Obama’s budget proposes to spend $46.5 trillion overall over the next 10 years, even more than the Senate Democrat budget, the highest government spending in world history
• “Obama’s budget also proposes $1.1 trillion in additional tax increases, on top of the $1 trillion in tax increases already going into effect this year under Obamacare, and the $600 billion in tax increases from the expiration of the Bush tax cuts for them in January”
• Raises taxes on the middle class
• The “Buffett Rule” doubles the top capital gains tax rate from when Obama entered office — making it the 4th highest rate on the globe
• Explains the difference between tax credits and tax cuts — and how most of Obama’s so-called “cuts” are credits, which is government spending run through the tax code.
• “His own budget admits that after 10 years, the deficit would still be $439 billion, still about the highest in history before President Obama.  Congressman Paul Ryan’s House Republican budget, in sharp contrast, would balance the federal budget within 10 years, with no tax increases, as scored by CBO”.
• “President Obama’s budget claims to reduce federal deficits by $1.8 trillion over the next 10 years.   But that only results from calculating the effect on deficits from an “adjusted baseline” used by the Obama budget, and not the CBO baseline”.
• “Obama’s budget assumes a suddenly booming economy to result from these policies, with real GDP growth in 2016, the end of his second term, at 3.6%, more than four times the average of his first term”
• He assumes that there will not be another recession within the next 10 years
• Obama budget will  “only reduce Social Security spending increases by one-fourth of one percent.  Even with Obama’s “reform,” his own budget projects Social Security spending to soar over the next decade by 85%, from $768 billion last year to $1.427 trillion in 2023.
  

  So what is the point of the President issuing a budget proposal now?

  The point is to simply posture for all those low information, Twitter voters in the 2014 elections, who will hear only from all the Democrat Party propagandists at the New York Times, the Washington Post, and MSNBC and brethren.  They will hear only about President Obama’s “spending cuts,” his grand, compromising, entitlement reforms, and how he is fighting for the middle class, with declining median incomes throughout his Administration, for the poor, with record, soaring poverty, and for “equality,” even as inequality has actually risen throughout his Administration.  Is this generation of Americans in the process of proving America’s more than 200 year experiment with democracy a failure”

Ferrara analysis is spot on. I urge you to read the piece in its entirety.