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http://www.boston.com/bostonglobe/editorial_opinion/editorials/articles/2010/06/24/abolish_unfair_tax_break_for_investment_managers/Abolish unfair tax break for investment managers
June 24, 2010
LETTING WEALTHY investors game the tax code does not promote a dynamic economy. Yet Massachusetts Senators John Kerry and Scott Brown have both accepted the dubious premise that future growth will suffer if managers of investment partnerships, including hedge funds, private equity, and venture-capital firms, have to pay taxes at the same rates as everyone else.
While the top federal income tax rate is 35 percent, capital gains — the money generated from successful longer-term investments — are generally taxed at only 15 percent. Lead partners in investment funds typically receive a management fee, which is taxed as ordinary income, but also take a portion of any increase in the value of the money they invest for other people. This cut is just another form of payment for the professional services managers provide to investors, but it’s still taxed at the lower capital gains rate. The benefit to some of the nation’s wealthiest taxpayers is enormous; the tax break costs the US Treasury $25 billion a year.
The loophole is an obvious target as Congress looks for ways to pay for the extension of unemployment benefits amid a continuing downturn. But investment partnerships have used that dynamic to their advantage, implying that Congress is arbitrarily sticking them up for money to fund its own priorities — and doing so in a way that will discourage investment in high-tech startups.
Kerry and Brown have both proved receptive to this argument. While Kerry has backed a compromise that would eventually subject most of the money in question to income-tax rates, he also helped weaken an effort simply to abolish the loophole. Brown has generally opposed higher taxation and expressed particular concern that venture-capital firms would suffer if the loophole disappears.
http://www.nytimes.com/2010/06/23/opinion/23wed2.htmlCutting Off the Unemployed
Published: June 22, 2010
It was bad enough when the Senate left town for a long Memorial Day break without passing a bill to extend expiring unemployment benefits. It’s worse now.
Back in session for nearly three weeks, the Senate still has not acted. That means that 900,000 jobless workers have already lost their benefits, a number that will swell to an estimated 1.6 million people if an extension is not passed by the July Fourth holiday. Lost benefits — the average check is $309 a week — deprives struggling Americans of cash they need for buying food, paying the rent or mortgage and other essentials.
All indications are that when the Senate finally does pass a bill, it will be stingy and cynical — hacking away at jobless benefits and fiscal aid to cash-strapped states, while preserving tax breaks for the wealthy and other well-connected political donors.
The problem, as always, is getting 60 votes to overcome hurdles imposed by the Republican minority. But Republicans aren’t the only culprits here.
Passage was delayed last week as several Democratic senators — including John Kerry of Massachusetts, Mark Warner of Virginia and Maria Cantwell of Washington — worked to water down a provision in the bill that would have largely closed an unfair loophole that benefits rich fund managers in investment partnerships. Unfortunately, the senators seem to have won that fight.
http://www.washingtonpost.com/wp-dyn/content/article/2010/06/23/AR2010062305827_pf.htmlUnemployment-benefits bill stalls in Senate as GOP rejects revised plan
Thursday, June 24, 2010; A12
Senate Democrats were ready to throw in the towel late Wednesday on a months-long effort to deliver fresh aid to states and extend benefits to unemployed workers, saying Republicans had rejected their latest offer to pare down the size and cost of the package.
Senate Majority Leader Harry M. Reid (D-Nev.) set the procedural wheels in motion for a climactic vote on the legislation as soon as Thursday. Despite days of talks, a senior Democratic aide said Reid had been unable to persuade any Republicans to support the measure, leaving him at least two votes short of the 60 needed to overcome a GOP filibuster.
Democrats control 59 seats in the Senate but expect to lose the vote of Sen. Ben Nelson (D-Neb.), meaning they would need the votes of at least two Republicans to cross the 60-vote threshold.
The package includes tax breaks for businesses and individuals, as well as emergency support for millions of jobless workers who have exhausted their regular 26-week state benefits. Unless Congress acts, an estimated 900,000 people will have their checks cut off by the end of the month.
Democrats were prepared to slash another provision, reducing proposed aid to state governments and covering the cost of the aid with unexpended funds from last year's $862 billion stimulus package, aides said. But those negotiations produced no consensus and appeared to collapse amid concerns that the package would add to already record budget deficits.
http://www.dailykos.com/storyonly/2010/6/24/878851/-Senate-ready-to-hang-states,-the-unemployed,-the-economy-out-to-dryGovernors and state legislatures in some 30 states have already budgeted for this funding, a huge portion of most states' budgets. A KFF report
last year found that "Medicaid is the second largest line item in state budgets following elementary and secondary education. Presently, 17 percent of state funds are allocated to Medicaid on average and it is the largest source of revenue in the form of federal grant support to each state."
It also found that decreases in funding "reduce the flow of dollars to hospitals, nursing homes, home health agencies and pharmacies, and reduce the amount of money circulating through the economy, affecting employment, income, state tax revenue and economic output." When you hear that as many as 200,000 jobs (the CBPP says it's up to 900,000) could be lost if this funding is not passed, these are the jobs in question.You've seen the stimulus. Now, meet the anti-stimulus.
By Ezra Klein
Washington Post Staff Writer
Sunday, June 20, 2010
A multiple choice question for you: Did the stimulus a) work; b) fail; c) end up locked in an unexpected battle with the massive anti-stimulus that's ripped through the states?
Most people would choose "a" or "b" (though I'd say "a" has the better of it). They probably haven't heard of "c." But ask Bruce Bartlett, a conservative economist who worked for Ronald Reagan, George H.W. Bush and Jack Kemp, and you'll hear all about it. "When the history of the current crisis is written, much of the blame will be placed on the sharp fiscal contraction of state and local governments," he says. "I think economists will view this as a preventable error equivalent to the Fed's passive shrinkage of the money supply in the early 1930s."
...
Unlike the federal government, 49 of 50 states must balance their budgets (the exception is Vermont). So when the economy crashed in 2007, they went down with it. First, tax revenue dried up because residents lost jobs. Second, expenses went up as more unemployed people needed help. The states with the most responsible budget practices had reserve funds and tricks to hold them over for a year, and maybe even two. Three years in, they're all up against the wall. And because they cannot run deficits to hold them over until their economies improve, they're cutting services and raising taxes. Using the data for 2009 and 2010, and then projecting for 2011 and 2012, the Center on Budget and Policy Priorities expects the total state shortfall will reach $610 billion.
Because some of the federal stimulus dollars were saved rather than spent, the effective stimulus we've had has been less than the $789 billion that's often touted. It might even be less than $610 billion shortfall in the states. Which would mean the anti-stimulus overwhelmed the stimulus. Or, you could look at it in reverse: Nick Johnson, who directs the State Fiscal Project at CBPP, says that "the effect of the federal stimulus was to wipe out the negative effect of the state contraction."
Either way, the assumption that total government spending has leapt up to counter the recession might be wrong. Worse, the federal stimulus money is going to thin dramatically this year, but the state budget problems could grow. And with unemployment sitting stubbornly at 9.7 percent, we're not in any shape to let the federal stimulus peter out and leave the state anti-stimulus to drag us down.
That means that the federal government has to step in with aid for the states.
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