Thursday Mashup Part Two (6/10/10)

(Part One is here.)

This is a really wonky kind of topic, but I felt that I should weigh in on the subject of taxing so-called “carried interest” at an average annual rate of 35 percent (it is currently 15 percent, falling into a category exempt from the 35 percent rate for earnings, which carried interest basically is).

As noted here, carried interest “is a share of the profits of a successful partnership that is paid to the manager of the partnership (a private equity fund or hedge fund) as a form of compensation that is designed as an incentive to the manager to maximize performance of the investment fund. A manager's carried interest allocation is in addition to any investment that the manager may have in the private equity fund or hedge fund.”

This reminds me somewhat of the argument against a so-called Value Added Tax, or VAT, which is a variation on the theme that all taxes should be abolished and “the magic of the marketplace” should return this country to prosperity, and as any life form with a pulse knows by now, that economic theory has utterly failed.

I felt compelled to say something based on this recent article at The Hill, which states as follows…

This move is seen by many as a “soak-the-rich” tax on wealthy investment managers on Wall Street. But the fact is these investment partnerships are crucial engines of economic growth for Main Street.

With an exploding national debt and burgeoning budget deficits, Congress is singularly focused on raising revenue. But in their rush to plug the hole in America’s budget, policymakers cannot lose sight of a simple fact: It would be disastrous long-term fiscal policy to create permanent roadblocks to economic growth, especially for the nation’s minority communities and entrepreneurs, as a short-term fix for today’s exuberant spending.

This preposterous argument reminds me of what I recently read in yet another scathing Matt Taibbi article in Rolling Stone on the recent financial reform maneuvers in the Senate (here), in which opponents of reform claimed the new regs “would make it tougher for a butcher to buy meat” (though the charge is of course wrong, I thought the symbolism was strangely appropriate).

Meanwhile, Robert Reich tells us the following here (from the reality-based community)…

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.

That's right--the cost of this subsidy is $20 billion in tax revenues. And these investment fund managers argue that if they have to pay ordinary taxes on their compensation like ordinary people have to pay, then they just might not invest in innovative companies and startups nearly so much as they otherwise would. That surely is a weak argument, as Reich notes, since worthwhile investments will call out for someone to make money off them, even if they do have to pay taxes at a slightly higher rate on the profits they make. So there will be decent investments and managers shouldn't be "discouraged" just because they have to pay more taxes. Will managers have slightly less money to invest? Maybe, maybe not. It depends on what they were doing with those excess millions anyway. They could probably invest the same and just waste less of it on charter flights, limos, and million dollar birthday parties (remember Ken Lay and Enron?). A lot of money invested in startups just goes down the drain. So taxes takes a bite, losing investments take a bite. It's not that different and nobody is claiming that venture capitalists won't invest if one of their investments comes up a loser. These arguments are, ikn other words, very weak when they suggest that investment in innovative companies will tank if the people who make millions (or billions) from servicing those partnerships have to pay taxes like the trucker and the teacher and the policeman and the fireman.

I can’t think of a word to describe the hypocrisy of so-called “deficit hawks” who will do the proverbial handstands trying to cut supposed “pork” from congressional budgets, but won’t lift a finger to close this loophole and thus add about $20 billion back into our coffers to provide more much-needed economic stimulus and lead us down that long road from red to black ink on this country’s ledger sheet.

Also, Matt Bai is back for more pundit wankery (here, on the subject of the recent Tuesday primary elections, in which, among other developments, teabagger – baggette? – Sharron Angle won the Repug nomination to face Harry Reid in Nevada, and Meg Whitman and Carly Fiorina purchased primary victories in California in the governor and U.S. Senate contests, respectively)…

This kind of thing stands in sharp contrast to the most recent historical analog, the 2006 elections. That was when Democrats, under the leadership of Senator Charles E. Schumer of New York and Rahm Emanuel, then an Illinois congressman, recaptured the House and the Senate.

They subordinated ideology to electoral appeal as they recruited candidates who matched up with the politics of their states or districts, promoting former soldiers and law enforcement officers, for instance, who they thought would qualify as broadly acceptable alternatives to Republican incumbents. In the vast majority of cases, Mr. Schumer and Mr. Emanuel, through some behind-the-scenes combination of cajoling and bullying, managed to head off divisive primaries, despite carping from the party’s more liberal base.

The preceding paragraph proves to me that, among other topics, Bai knows absolutely nothing about what led to Patrick Murphy’s eventual victory in the general election for the PA-08 U.S. House seat in 2006. As opposed to “heading off a divisive primary,” Patrick defeated two other alleged Democrats, Tom Lingenfelter and Andy Warren, in a primary contest (to me, one of the more hilarious moments was when Warren, trying to pander to every possible Democratic constituency, claimed that he supported an impeachment “hearing” for Former President Highest Disapproval Rating In Gallup Poll History…the problem is that an impeachment proceeding is an actual trial).

And while Murphy benefited from the fact that the '06 occupant of An Oval Office was so thoroughly despised then as now, along with his war of choice in Iraq – and yes, I’ll admit that that was a substantial unifying force until 1/20/09 – to say that Murphy “subordinated ideology to electoral appeal” does a disservice to both his candidacy and his job performance. There was a reason why he received such thorough support from social networking types, labor unions, and other core party constituencies, and it wasn’t exclusively because of the war. And all of it was needed to offset most, but not all, of Mikey Fitzpatrick’s support in Bucks County, with Murphy clobbering the Repug incumbent in the Philadelphia and Montgomery County portions of the district to achieve the margin of victory.

And by the way, to help Murphy in what I’m sure will be a wingnuttia-filled challenge from the teabaggers and other miscreants, click here.

Update 6/19/10: And by the way, kudos to Patrick here for his call to hire more people at the SEC to investigate corporate, securities and mortgage fraud (as well as Steve Santarsiero's web site for ideas to reduce state spending).

Finally, I know I’m a little bit late in commenting on the loss of Bill Halter to Blanche Lincoln in the Arkansas Dem primary last Tuesday, but I had to say something in response to this…

WASHINGTON – Unapologetic union officials on Wednesday defended their decision to spend an estimated $10 million on a high-stakes gambit that failed when Arkansas Sen. Blanche Lincoln narrowly defeated labor's hand-picked candidate in a primary runoff.

It was the latest in a perennial effort by frustrated unions to convince moderate Democrats there are consequences for failing to stand with labor. But it raises questions about whether that money could have been better spent helping dozens of vulnerable Democrats in other states.

"To use $10 million during a recession on beating up their own rather than trying to save the endangered makes no earthly sense," said Doug Schoen, a Democratic political consultant.

Spoken like a true corpocrat Dem who represents no one but himself.

As noted here, Hillary Clinton ended up owing $3 mil to Schoen’s PR firm (along with the equally odious Mark Penn); in the post, Schoen actually gives advice to McCain to bring on Holy Joe as his running mate, which tells you all you need to know about Schoen’s true allegiance.

Oh, and Schoen said the Dems should stop “harping” on withdrawing from Iraq and “refocus the debate to other international and domestic issues,” and that was supposedly the winning electoral formula for 2008 (here, and here is an epic takedown of Schoen by Markos Moulitsas).

Also, I would be remiss if I didn’t take note of some personal disgust over the conduct of Democrats that I often admire, particularly in the Lincoln/Halter race. And yes, I’m talking about Bill Clinton.

Is it possible that the legendary political instincts of “The Big Dog” have failed him? Doesn’t he realize that Halter was the Dem who had managed to energize the true base of the party?

Read this well, all who would hold their nose and vote for Blanche. She may have won the battle, but because of that fundamental disconnect between the Democratic “wise men” and the campaign foot soldiers (which remains from the bad Dubya days, and possibly always will), this seat will go red in November.