Obama Can End the “Carried Interest” Loophole Without Congress

Wow, you really do learn something new every day.

I really, really hate the “carried interest” loophole that lets the ordinary income of hedge fund and private equity guys get taxed at the lower rate for capital gains.  Right now the top rate for ordinary income is 39%, and only 20% for capital gains, so we’re talking real money.  The top 25 hedge fund managers made more than $24 billion in 2013.

I always thought that Congress gaveth that loophole and Congress would have to taketh it away.

But nooooo!  As David Lebedoff writes at Slate*, the IRS issued a ruling in 1993, before hedge funds existed, that was intended to apply to real estate investments.   Congress never voted on it.  When hedge funds arrived on the scene, the IRS applied this ruling to them.  But President Obama could — right now, today, before his bedtime in Europe! — tell the IRS to stop doing that.

Looking for a real IRS scandal?  This is it.

* “Why Doesn’t Obama End the Hedge Fund Tax Break?”

Quick Thought on Unemployment Benefits

All of us have our pet peeves, and one of mine is the “carried interest” loophole, which lets those who get their income from venture capital, private equity, hedge funds, and real estate limited partnerships pay their taxes at capital gains rates (20%) rather than ordinary income rates (39.6%).

With about 1.3 million people (plus the people who depend on them) losing their unemployment benefits as of today, I went back to check what carried interest costs the Treasury, to see if it would have covered extending those benefits for three months.

Carried interest costs the government between $11 and 13 billion a year*, while the unemployment benefits would have cost $6 billion.

So score one for the caviar and Champagne crowd, and nothing for the Ramen noodle and tap water crowd.

See “A Costly and Unjust Perk for Financiers,” Lynn Forester de Rothschild, NYT, February 24, 2013

It’s Jobs, Not the Deficit

The deficit for FY 2013, which ended on September 30, was $680 billion.  To economists, what matter is not the amount of the deficit, but what percentage of GDP it represents.  In this case, it’s 4.1% of GDP.

For FY 2009, the deficit was 10.1% of GDP.  So the deficit has fallen by more than half.

Right now, our most immediate concern is (or should be, GOP) jobs, not the deficit.  Yes, we have longer-term deficit problems, but the most important thing to do now is not to make those future deficits worse by failing to create jobs.  To the extent we do that, we generate more tax revenue and we reduce demand for unemployment benefits, Medicaid, and food stamps, so the government automatically gets more and spends less without cutting the safety net or raising taxes.

Media Squabble Alert

If you like this sort of thing, Salon and MSNBC are having a tiff.

Alex Seitz-Ward wrote a story yesterday calling out the media for falling for the IRS scandal.  I quoted from the story on this blog.

Last night, Lawrence O’Donnell did a long “Rewrite” on his MSNBC show, faulting Seitz-Ward for not crediting O’Donnell with recognizing the phoniness of the scandal early on and in 24 (O’Donnell kept emphasizing that 24) segments on his show.

Now Alex Pareene has a post up at Salon slamming O’Donnell  — “Lawrence O’Donnell outraged to read story that isn’t about him.”

I’m sure we’ll be hearing from O’Donnell this evening.

Where’s the Media Apology on BS IRS “Scandal”?

From “How the media outrageously blew the IRS scandal:  A full accounting,” Alex Seitz-Wald, Salon:

“While the initial reports about the IRS targeting looked pretty bad, suggesting that agents singled out tax-exempt applications for Tea Party and conservative groups for extra scrutiny, the media badly bungled the controversy when supposedly sober journalists like Bob Woodward and Chuck Todd jumped to conclusions and assumed the worst from day one. Instead of doing more reporting to discover the true nature and context of the IRS targeting, or at least waiting for their colleagues to do some, the supposedly liberal mainstream press let their eagerness to show they could be just as tough on a Democratic White House as a Republican one get ahead of the facts. We expect politicians to stretch reality to fit a narrative, but the press should be better.

“And they would have gotten away with it, too, had their narrative had the benefit of being true. But now, almost two months later, we know that in fact the IRS targeted lots of different kinds of groups, not just conservative ones; that the only organizations whose tax-exempt statuses were actually denied were progressive ones; that many of the targeted conservative groups legitimately crossed the line; that the IG’s report was limited to only Tea Party groups at congressional Republicans’ request; and that the White House was in no way involved in the targeting and didn’t even know about it until shortly before the public did.

“In short, the entire scandal narrative was a fiction. But it had real consequences, effectively derailing Obama’s agenda not long after a resounding reelection, costing several people their careers, and distracting and misinforming the public. It’s not that nothing went wrong at the IRS, but that the transgression merited nowhere near the media response it earned. But instead of acknowledging its error or correcting the record, the mainstream political press has simply moved on to the next game.”

The whole piece is worth a read, as Seitz-Wald also calls out David Gregory, Jon Stewart, Andrea Mitchell, Chris Matthews, and Robert Gibbs for taking the bait so credulously without doing their homework.

Brown Shoots

GDP growth for the first quarter of 2013 has been revised down, from 2.4% to 1.8%.

When the number was initially reported as 2.4%, the Powers That Be said the stupid sequester and the tax increases that kicked in on January 1st weren’t having much of an effect on the economy.   The Powers That Be were obviously wrong.

Well, That Explains It

Now that we know the IRS was scrutinizing the entire political spectrum, looking for a level of political activity that would disqualify groups from a 501(c)(4) tax exemption with key words like “progressive” as well as words like “Tea Party,” I was wondering why the original Inspector General report that triggered this whole BS “scandal” mentioned only conservative groups.

It’s because Congressman Darrell Issa (R-CA), the ringmaster of this circus, asked for an audit limited to targeting of conservative groups.

So we’ve come full circle.  He’s an even bigger piece of shit than I thought.

For more, see “Sander Levin:  IRS tea party probe ‘flawed in a fundamental way,’ Lauren French, Politico; “Darrell Issa’s credibility is over,” Alex Seitz-Wald, Salon.com; “Documents Show Liberals in I.R.S. Dragnet,” Jonathan Weisman, NYT

Headlines of the Day

“Mitch McConnell Realizes IRS Scandal Is Over”

“House Republican Hate Poor Too Much to End Farm Socialism”

Both come from Jonathan Chait at New York Magazine.

The Phony IRS Scandal

Dems on the House Oversight Committee have released transcripts showing that an IRS manager in Cincinnati — who refers to himself as a conservative Republican — is the one who came up with the idea of centralizing Tea Party-type applications for review.  I think centralize is a better word for what happened than “targeting,” with its perjorative connotation.  It makes sense to centralize similar applications to make sure that you are processing them consistently, and that’s exactly what the manager says he was doing.

He also says that the White House wasn’t involved.

Some IRS officials in Washington became involved as well after the Cincinnati guy originated his centralized reviews, but there’s no evidence that they weren’t trying to find fair criteria to judge how much of these groups’ activities was political and not “general welfare” to determine if they deserved a tax exemption as 501(c)(4) groups.

But Darrell Issa’s attempts to portray a White House going after its “enemies” as Richard Nixon tried to do seems exaggerated and misguided.

I was angry at the White House for initially acquiescing right away that there was an IRS “scandal” here at all and for accepting the term “targeting” of Tea Party groups.  Centralizing is not targeting.

Happy Days Are Here Again…

Consumer confidence is at its highest level since February 2008.

Housing prices in 20 major cities jumped 10.9% in the past year, the biggest annual increase since April 2006.

We know the deficit is looking much, much better than expected, as recovery brings more revenue to the government.

So for 2014, the GOP is left trying to sabotage Obamacare and trying to milk all the mileage they can out of the Benghazi, IRS, and reporter (AP/Fox’s James Rosen) “scandals.”  I remain unconvinced that any of these is really a true scandal.