When we were all getting worked up over whether the House and Senate would take up tax breaks for those making more than $250K and turn it into a great populist issue for the election, why wasn’t anyone talking about the carried interest exemption for hedge fund managers?
But then they went a step further and created the “carried interest” tax break. In this insane scenario, the income earned by managers of things like hedge funds, venture capital funds, gas partnerships and real estate partnerships would henceforth be taxed not as income but as “carried interest,” and “carried interest” legally would be taxed at the same rate as capital gains. The professional gamblers who manage things like hedge funds, people like John Paulson (you’ll remember him as the guy who worked with Goldman Sachs to cook up a toxic package of mortgages to dump on unsuspecting Dutch and German banks), typically get paid via something called the “two-and-twenty” arrangement. They get a two percent management fee (i.e., two percent of the big chunk of Other Peoples’ Money in their funds) plus 20% of whatever profits they make.
The bill to end this tax break was watered down in the House, further neutered in the Senate, and is now stalled. I don’t know what could be more popular than getting rid of an unjust tax break for a tiny slice of Wall Street billionaires, but I do know why Democrats aren’t making this a big campaign issue.
Walker
Because hedge fund managers have enough money to pay off both sides.
Derelict
I have a friend who manages a hedge fund. He makes about $2 million a year. By the time he’s done with all his tax breaks, he pays less in taxes than my station assistant friend who makes $20,000 a year.
For this and all their other signal failures over the last four years, Democrats deserve to lose control of Congress.
Svensker
I hate them. That is all.
Svensker
@Derelict:
Because Republicans will make it better?
Omnes Omnibus
@Svensker: They will heighten the contradictions. Up the Revolution!
WyldPirate
I know I sound like a broken record, but it’s over people.
Both sides–Dems and Rethugs are bought and paid for. click on the Open Secrets link and look at the amount that went to to Dems from the hedge fund managers.
Obama? Bbought and paid for too, despite the smooth rhetoric and false, BS “sympathy” he projects for the “little people” who he made such noises about during his campaign. His biggest contributors? Fucking Wall Street.
In fact, the Dems deserve less respect than the Rethugs. Why? because most of the Dems are two-faced fucks who speak out of both sides of their mouth. At least most of the Rethugs don’t lie about whose interests they pay the most attention to.
Nothing is going to change until there is a complete collapse of the economy, followed by revolution to throw out the crooked cocksuckers of the rich (our elected representatives) out of our government “of the people” that finds the streets running with rivers of blood. Thyis will likely be preceded by decades of peonage for most of the citizens of the country.
And then the cycle will repeat itself. Maybe not here, but elsewhere.
Omnes Omnibus
@WyldPirate: You woke up cheerful this morning.
Paris
Someone has been discussing this issue. Howie Hawkins is the Green Party candidate running for governor of New York.
Karmakin
It’s not because they’re bought. Personally, I don’t like that explanation. The amounts involved, for being bought are simply insulting.
I think there’s buying of access involved, and the access allows them to convince dumb lawmakers (redundant I guess) that messing with the brokers will result in much damage to Wall Street.
And as most of these people either have a ton of personal money in Wall Street or they believe that Wall Street provides an essential need for the economy (hint: by and large it doesn’t), it follows that messing with the brokers is a bad thing.
If you want to stop this, the first thing we need to do is convince an overwhelming majority that this sort of “investment” is a fraudulent ponzi scheme writ large.
El Cid
Well, as long as you do budgeting like the principled anti-tax conservatives of California, whose new budget agreement avoids raising taxes in part by betting on being handed more money by the federal government, then, anything is possible!
STOP SOSHULLISM! STOP ALL THE TAXES! CUT THE SPENDIN’! AND GET UNCLE SAM TO PAY FER OUR BUDJIT!
Napoleon
The Dems not getting rid of this is bad for more then just the populist angle. By not taxing income like this and allowing the deficit to bloom they are giving the Rep an assist in ultimately dismantle what is left of the social welfare net. That is why I am going to view any Dem going along with tax cuts for the rich as effectively voting yes to gutting the New Deal. Nothing less then that.
KCinDC
This is why despite Harry Reid’s ineffectuality, replacing him as majority leader with Chuck Schumer would have some unpleasant consequences, increasing the power of Wall Street even more.
TJ
Good lord, I headn’t heard that. Don’t let any New York Dem anywhere near the leadership, at least until the next bank crash is past.
Derelict
@Svensker:
Certainly the Republicans will not be any better. But I am frankly tired of watching my party constantly bargain away, fritter away, and throw away every opportunity to make positive change. I’m also quite tired of being told by the administration that I am part of the problem for wanting positive change–that I should be satisfied with the tepid and tiny increments that the Dems have kinda-sorta thought about considering.
So, maybe what we need is Republican control of Congress. That way they can begin their impeachment proceedings, eliminate the Estate and Capital Gains taxes, and run us into a third war AND a profound depression. Then maybe voters will gives Democrats more than 60 seats in the Senate so they can fritter that away as well.
burnspbesq
Your discussion of carried interest is inaccurate in one very important way.
It is simply not appropriate to use the word “created” to describe the tax treatment of carried interest. No Congressional action was necessary to create this treatment. It is an absolutely straight-forward application of fundamental principles of partnership taxation.
Partnerships are pass-through entities. Partnerships do not pay income tax. Instead, partners are taxed currently on their distributive shares of partnership income, regardless of whether any cash is actually distributed. Income earned by the partnership retains its character when reported by the partners.
Taxing what would otherwise be capital gain received by fund managers as ordinary income is appropriate, because in any meaningful sense that income is compensation for services. But let’s be clear: that will be a departure from a set of principles that are logically coherent and have served taxpayers and Government well for 60 years. And to the extent that you are suggesting that there is something nefarious about following the law as it is written, I absolutely reject that suggestion.
Omnes Omnibus
@Derelict:
The thing about that is that people, including my family, friends and I, would have to live through it. I don’t wish that on us. Therefore, I am in favor of working to fix things rather than letting them grind to a complete halt. In addition, if everything goes to shit, don’t count on the world being rebuilt as a progressive paradise; it could easily go the other way.
Omnes Omnibus
@Derelict:
The thing about that is that people, including my family, friends and I, would have to live through it. I don’t wish that on us. Therefore, I am in favor of working to fix things rather than letting them grind to a complete halt. In addition, if everything goes to shit, don’t count on the world being rebuilt as a progressive paradise; it could easily go the other way.
burnspbesq
“No one was talking about carried interest” because carried interest is chump change when compared to the revenue effect of allowing the Bush rate changes to expire.
http://www.taxpolicycenter.org/briefing-book/key-elements/business/carried-interest.cfm
The fundamental premise of your post is erroneous. Unless you’re more interested in class-war demagoguery than in having an intelligent conversation about an important subject.
Suck It Up!
@Derelict:
Well, I DON”T deserve that, thank you very much.
Suck It Up!
@Derelict:
So you’re a Republican? ’cause that’s what they’ve been doing for the past 20 months and the previous 8 years.
No one ever told you that. What you seem to want is instant gratification and sweeping victories, what they are telling you is that Washington don’t work like that and never has. tepid and tiny increments is how some of our best and most popular legislation have come about.
I’d take the Democrats over the Republicans any day.
agrippa
Personally, I am real weak on GOP control [ of just about anything]. There is really no telling what those people will do.
I prefer that fractious, undisciplined and dithering amalgam called the Democratic Party.
“Carried interest”, to me, does appear to be capital gains.
burnspbesq
@Suck It Up!:
Far too many people, for reasons unknown, continue to believe that Obama promised them a pony and an unlimited supply of their favorite kind of ice cream.
Mnemosyne
@Derelict:
Okay, I’ll go there: because letting the right wing run rampant in the hope that they’ll wreck themselves has worked out so well in the past.
burnspbesq
@agrippa:
““Carried interest”, to me, does appear to be capital gains.”
Zounds! A Banksta Apologist! Stone him!
Seriously, though: somebody puts up one percent of the capital and agrees to provide management and advisory services, and gets a 20 percent interest vin partnership capital gain, and you don’t see that as compensatory? Would love to hear your reasoning.
Nick
@Derelict:
or maybe (more likely) we’ll get a tea party government that will bash Mexicans, Muslims and Welfare Mothers.
This is the same logic that is bringing a lot of liberal people I know toward voting Paladino…”destroy the country so we can fix it”
There’s no guarantee what rises from the ashes will be progressive.
Nick
@Derelict:
Positive change doesn’t happen all at once, it happens over a long period of tough fights that are often bargained away, frittered away and thrown away.
Otherwise we’d have universal healthcare in 1949
El Cid
For what it’s worth, not every single utterance by us humans has to count as an electoral strategy. If someone says something like ‘the Democrats don’t deserve to win’ based on this or that, it isn’t necessarily the same thing as saying that in one’s official opinion then they should lose and Republicans should take over.
If someone wants to moan and rage about how badly we’re being screwed, how frustrating it is the tiny amount of good we’re done, it’s a perfectly sane expression; it doesn’t have to be derided as some sort of infantile cry that the complainer is basically saying they wish roasted chickens were flying through the air to pluck for free, and this kind of thinking will lead to President Palin.
It’s possible for people to express sentiments and opinions which aren’t intended to be instruction manuals for party officials.
Nick
@burnspbesq:
Because as Al Gore and John Kerry taught us, you have to promise the moon and the stars, or at least create the illusion you did, in order to get enough liberals to show up at the fucking polls to get 51% of the vote.
mistermix
@burnspbesq: I didn’t use the term “created”, Taibbi did in the article linked to.
And I’m in a pass-through partnership and there are a whole bunch of details involved with the way that taxes are assessed on each partner’s capital account based on what they’ve contributed to the partnership. They are by no means straightforward, and so I’m really dubious about your claim that the hedge fundies didn’t get a special break in the tax code.
Nick
@El Cid:
Yeah, it does. There are only two choices, Unless you think no one deserves to win, if the Democrats don’t, the Republicans do.
Anyway, the Democrats deserve to win because they’re the only ones actually trying, and you can sit here and tell me they didn’t, but that would be ignorant to the REALITY that they’ve pursued the most ambitious legislative agenda in over half a century and did it without any support from the opposition, which is counter to the way our government has always functioned, and with that, they’ve managed to do some remarkable things and set a course for future change.
And if you’re looking at our situation and saying “but things still suck” it’s because the hole that we were left in was way too deep to fill in in such a short amount of time, but thanks to this Congress and this administration, we are no longer bleeding jobs at an unprecedented rate, and just today I found out that my uncle’s company is changing the way they deliver their healthcare so that they’ll be paying less out of pocket thanks to the new HCR law, and, oh, btw, did I mention his daughter can now stay on his plan for three more years? It’s a good thing since the only jobs she can find are those who don’t give benefits.
Anyone who discounts that because they didn’t get their Public Option or Dick Cheney War Crimes Trial pony needs to be hippie punched.
J
@Derelict:
This is true so far as it goes, but in our two party system, one party loses control only if the other gains it, and, as it happens, there is a party less deserving of being in control than the Democrats, to wit the Republicans. If what a party does and fails to do while in power is a large part of the basis for judging whether it should be maintained or restored to power, we should not forget what Republican control was like over the better part of the last decade, which is hardly ancient history. In the absence of evidence that the Republican party has changed–and there is none–this is the unavoidable comparison. This is not, and is not meant to be, a ringing endorsement of the Democrats–to say they emerge as the better of the two by comparison with the Republicans is to set the bar very low. In a word, the situation *sucks*. By all means, be disappointed with the Democrats, in both houses of congress and the white house. Without being mad Utopians, we can hope for and demand better, but to stand by passively and shrug our shoulders at the prospect of more Republican misrule is a counsel of despair, and it would inflict more suffering on our fellow citizens and the world than I care to contemplate.
TJ
@El Cid:
For the people who believe in magic spells it does.
J
@Nick: I’m completely with El Cid on this one (even if Derelict’s second post suggests that he may not hold the the kind of view EC was defending). One can grumble about the Democrats and still vote for them, which is what I, for one, intend to do.
burnspbesq
@mistermix:
Well, you can be dubious, or you can go to http://www.gpoaccess.gov and read Code Section 702 and the regulations under that section, and see that I’m right.
The complexity in your partnership’s allocation scheme is almost certainly driven by the complexity of the “substantial economic effect” rules in the regulations under Code Section 704(b). Different thing.
Mnemosyne
@El Cid:
I’m sympathetic towards the complaints that not enough has been done right up until we get to the point of deciding to put the Republicans back into power so they can wreck things even more.
I understand that nihilistic desire to sit back and watch the world burn, but I can’t go along with it.
Derelict
I’m too much of a realist to have expected the instant granting of all progressive wishes. And, yes, having Republicans in control would probably wreck the country.
But I’m extremely frustrated with my party’s complete inability to get anything accomplished; with its penchant for STARTING negotiations by giving away the vast bulk of what it says it wants, with its refusal to play politics in the world of politics.
The first time the Republicans pulled the “We’ll filibuster!” threat, Reid should have said, “Here’s a telephone book. Start reading.” He should have forced them to actually filibuster–and made a very big deal about how Democrats want to save the country, but Republicans are playing partisan games hoping to ride to victory on the misery of the people. Instead, what we get is the voice in Reid’s head that says, ” The Republicans might think about considering a filibuster” and Reid surrenders pre-emptively. Hell, even Obama surrenders pre-emptively on most issues.
We may not deserve the outcome, but the current crop of Democrats do deserve to lose.
mistermix
@burnspbesq: The straightforwardness of applying the principles underlying partnership law is completely proven by a link to that simple, straightforward site.
Since you want me to read the entire tax code yet you didn’t bother to RTFA, I’ll quote part:
I think that’s basically true, and haven’t seen a refutation from you. The tax code is big and complex because interests battle to get their exemptions/loopholes into it. It’s really laughable to claim otherwise.
Nick
@J:
There’s a difference between “doesn’t deserve to win” and ‘they need(ed) to do more”
They deserve to win for the very reason they’ve done stuff, and they need to do more.
Nick
@Derelict:
But they got TONS accomplished. Why has the most successful two years of any American government in decade been labeled as “getting nothing accomplished”
You know, I think the reason the news stop reporting the facts is no one will believe them anyway.
FACT: A filibuster is not “reading the telephone book,” a filibuster is simply objecting to a unanimous consent request to end debate on a piece of legislation. Reid couldn’t force them to READ a phonebook. They only read one when they want to.
The fact that you don’t know this, or choose to ignore it, shows you’re NOT a realist.
El Cid
@Nick:
What utter bullshit. This is such a ridiculous notion that every god-damned utterance out of one’s brains has to do directly with choosing the imminent possible future.
That’s like saying that being pissed off and expressing frustration at not having created some semi-permanent space colony on the Moon means you hate the Hubble telescope and the ISS and you love flat Earthers and want to have their babies.
If somebody thinks that either I only express thoughts related to my absolute recommendations on what should happen given actually possible options, then go to fucking hell.
El Cid
@Mnemosyne: Good god! Can no one bitch and moan about something without making some immediate public recommendation about what to do? Fuck.
LongHairedWeirdo
A fascinating tidbit: one of the reasons Republicans used for capital gains tax cuts is that they boost employment. For example, buy stock in a company, stock doubles in price, well, it was *your* investment in the company that helped them make more money, and that meant more jobs! We should *encourage* capital gains, by lowering the taxes on it!
(After all, putting your money to work should be worth more than putting your *body* to work, right?)
I wonder how they argue in favor of this carried interest bit?
(I reckon they don’t have too. That’s the wonderful thing about the media today. Math (and finance!) is hard.)
burnspbesq
@mistermix:
“I think that’s basically true, and haven’t seen a refutation from you. The tax code is big and complex because interests battle to get their exemptions/loopholes into it. It’s really laughable to claim otherwise.”
As a general proposition, that may or may not be true. In the case of carried interest, it’s absolutely false. Point me to a legislative change that enabled hedge fund managers to treat carried interest as capital gain (hint: you can’t, and neither can Taibbi). That’s just the way current law works.
The rest of your comment was equally nonsensical. I told you the specific provision of the Code that is dispositive on this question. What, you couldn’t figure out how to navigate the GPOAccess site?
God gave you brain cells for a reason. Use them. I’ve given up on Taibbi; he’s been hit with the stupid stick too often. But I still have hope for you.
arguingwithsignposts
@Omnes Omnibus:
This time, I think your double post is entirely warranted. In other words:
This.
This.
arguingwithsignposts
I don’t give a shit. All capital gains (carried interest, whatever) from Wall Street gambling should be taxed as regular income. Full stop. If not, then let’s just tax cas1no winnings as capital gains and stop pretending.
The argument that regular doesn’t create value in the same way that investment does is the sort of thing that keeps our oligarchy in power. Which is, sigh, why it will probably never change.
Nick
@El Cid:
No it isn’t, but you’re saying two completely different things. If one expressed frustrating at not forming a colony on the moon by saying “NASA doesn’t deserve to exist,” then you’re, by extension, criticizing the entire space industry because that’s NASA.
Saying “Democrats deserve to lose” is saying people like Russ Feingold, Alan Grayson Anthony Weiner, Tom Periello, etc., deserve to lose, and Nancy Pelosi deserve to be booted from the Speaker’s chair, etc.
They don’t, therefore Democrats don’t deserve to lose, maybe conservatives do.
Wilson Heath
It is Sunday so I’m not going to get into Subchapter K. But I will mention that if the component of carried interest that is economically compensatory in nature were treated as such for income tax purposes, it might follow that it is also treated as such for FICA/FUTA, all to the better for maintaining the funding of Social Security and Medicare.
(Hell, I’m also for including a lot of capital gains in the FICA/FUTA tax base, but that’s another discussion.)
Derelict
@Nick:
That’s a fine bit of either inability to detect a metaphor or deliberate obtuseness. The point most people took from “Here’s a phonebook. Start reading” is (or should be) that Reid would force the Republicans to actually filibuster. Not simply intimate that they might. Make them stand in the well of the Senate and really filibuster.
That would dominate the news cycle, and force the Republicans to explain to the cameras why they’re against little Johnny and apple pie.
Instead, we get the same reaction to every Republican threat: Folding like a cheap suit.
And as for “They got TONS accomplished,” please point to something other than the terminally crippled healthcare reform (where Obama and the Democrats STARTED negotiations by giving away nearly everything, and then negotiated away the rest). Or finance reform that went the same way (spearheaded by Chris Dodd). Or the stimulus that they STARTED negotiations on with a too-low number because Republicans would object and then negotiated their way to an even smaller package that was doomed to fail.
Nick
@Derelict:
But again, your wrong because what they’re doing IS ACTUALLY FILIBUSTERING
You don’t know what a filibuster is.
Do you remember when Jim Bunning objected to extending unemployment benefits? He just stood on the floor on object to unanimous requests from Dick Durbin to move to a vote, he did it over and over again, THAT’S A FILIBUSTER. The only reason you’ve gotten the wrong impression that a filibuster is someone reading to phone book is in the past when people like Wayne Morse, Strom Thurmond and Al D’Amato filibustered, they WANTED to make a show of it.
When a cloture vote fails, which happens ALL THE FUCKING TIME, that IS a filibuster. Why is this so fucking hard to understand?!?!
-Equal pay
-LGBT added to hate crimes law
-New rules for credit card companies
-bailout and restructuring of the auto companies
-in connection with above, cash for clunkers
-Student loan reform, making it less costly to both students and the government to send kids to college
-dismantling and restructuring of the Mineral Management Service
-Nuclear arms deal with Russia
-Investments into clean energy
-removing all combat brigades from Iraq, going from 100,000+ troops to just under 50,000.
Your problem is, you don’t want to see the positive side of what we accomplished, you don’t want to see the fact that the bills you just shit all over helped college graduates stay on their parents healthcare, so they can pursue further education or gain experience in their field without having to worry about getting a job with benefits. You don’t see that we successfully won funding for community health centers. You don’t see the financial reform bill you called a sellout had a strong Consumer Protection Agency that we fought for, you don’t see that the stimulus bill included the largest investment in infrastructure since the Interstate Highway System. You just want to see the negative. There’s always going to be something you can point to to scream it wasn’t enough. You’re a negative person. You should deal with that.
Shade Tail
My security software is saying that the article/site mastermix linked to is dangerous, either because it transmits malware or is a fraud site.
KCinDC
I don’t like that capital gains are taxed less than workers’ salaries either, but at least there’s an argument that the lower rate encourages people to take risks and invest. That doesn’t apply to this “carried interest” insanity for hedge fund managers’ commissions. They’re not risking anything. They get a percentage of the money the clients are putting into the fund, whether the fund makes or loses money, and they have to risk of loss. Yet somehow that counts as capital gains? I don’t care whether that idiocy was introduced to the tax code recently or decades ago—it needs to go away.
Sure it may not have a huge effect on the deficit, but by that argument there’d be nothing wrong with exempting these billionaire parasites from taxation entirely. This isn’t about absolute numbers of dollars. It’s about basic fairness.