Thursday, June 30, 2011

Obama is right about taxation of hedge fund partnerships

One of the most outrageous industry specific tax breaks is the preferential tax treatment of "carried interest" for hedge fund and private equity partnerships.

In a hedge fund or private equity partnership, the fund managers get paid by the limited partners (i.e. investors) in two ways: an annual fee, usually 1-2% of assets under management, and a percentage of any investment gains made by the fund, usually 20%. This 20% participation fee is known as carried interest.

For some reason, our tax code treats carried interest as if it were a capital gain, and is therefore taxed at a 15% rate and is excluded from payroll taxes. But carried interest is not really a capital gain. We are not talking about the hedge fund managers own money here, we are talking about a management fee. Yes it is a highly uncertain, contingent fee, but it is still a fee nonetheless.

Hedge fund managers claim that the preferential treatment is justified because the fee is uncertain and risky. But there are lots of occupations where the ultimate income is highly uncertain - a lawyer who works on contingency, an author or composer who gets paid via royalties, or a salesmen who works on commission - yet all of these folks pay taxes at ordinary rates.

The President has proposed that the preferential taxation of carried interest be eliminated, and I agree with him. His problem is that he may have to fight some members of his own party on this one - particularly Charles Schumer.

By the way, I only agree with the President with respect to the preferential nature of the tax rate, not with the idea that 15% is too low of a tax rate. I think all income should be taxed at a flat 15% rate, whether you work at a hedge fund or not.

Tuesday, June 28, 2011

Farewell to the Glenn Beck Program on Fox

In honor of the final week of the Glenn Beck TV program on Fox News, I have assembled a list of my favorite moments from the show.

February 2010, Glenn Beck vs. Joe Klein. My favorite comedic moment was this clip where he lampoons Joe Klein and the Ivy League faculty lounge, donning a tweed smoking jacket and a pipe. I've watched it a dozen times or so and it never gets old. Just hilarious.

Look it up Joe, it's true. It almost makes it sound like you don't know what you are talking about. And it also kind of turns your entire nasty little blog entry into...anti-intellectual drivel!





August 2009, Beck exposes Van Jones. Beck makes history by airing a devastating mini-documentary on the radical background of White House clean energy czar Van Jones. Thanks to Beck and a revelation that Van Jones was a 9/11 truther, Van Jones resigned just a few weeks later. Beck 1, White House 0.



July 2010, Beck devotes entire show to Hayek's Road to Serfdom. It wasn't Beck at his best...I am not sure Beck actually read the book before doing the episode. But it didn't matter. Within hours, the book jumped to number one on Amazon.com.



February 2010, Beck addresses CPAC. This was not actually part of his TV program, but it might as well have been. The best moments: his rock star introduction set to the music of Muse, and the moment he brings out his chalkboard.




January 2009, The Inconvenient Debt. This was very early on in the show's history, and I think was one of the first Beck clips that went viral. He parodies Al Gore to demonstrate the dramatic and frightening rise in the nation's money supply. Who said monetary policy makes for bad TV?




May 2010, "The Plan". Yes, he is a self described rodeo clown, but in May of 2010, Beck devoted an entire week to outlining a plan to solve the country's fiscal problems and reversing 100 years of progressivism. He discusses how to cut entitlements, education, health care, and yes, even defense spending. Making policy conversations accessible and entertaining...Beck at his best.



October 2009, Glenn vs. Anita Dunn. In the fall of 2009, White House communications director Anita Dunn spearheaded an unusual White House strategy to attack and marginalize Fox News, calling the network "opinion journalism masquerading as news". A few weeks later, Beck reveals a video of Anita Dunn making a speech where she calls Mao one of her "favorite philosophers". Was she joking when she said that? Most likely. She claims she was "being ironic". But at a minimum, it showed really bad taste. And after going after Fox, did she really think she was going to get the benefit of the doubt? Beck 2, White House 0.

And perhaps the funniest part of all of this was on the next episode, when Beck's staff member manning the White House hotline is dressed in a Mao suit. Hilarious.




March 2009, Beck apologizes to audience for Massa interview.
On March 7, 2010, Democratic Congressman Eric Massa accused the White House of orchestrating an ethics investigation "to oust him because he had voted against overhauling health care". Beck is intrigued and lands an hour long interview with the former Congressman, hoping to get some insight into possible Chicago style political tactics from the White House. The interview is a complete disaster, as Massa backs away from his previous statements and is preoccupied with pointing out that he did not engage in "groping", only "tickling". At the end, Beck apologizes to his audience for wasting their time.




January 22 2010, Beck airs documentary "The Revolutionary Holocaust"
. Beck takes a huge risk and it pays off. Jonah Goldberg, who is featured in the documentary, described it as follows: "It is very, very hard hitting. It’s the sort of thing that would never, ever, have been allowed on TV 20 years ago."



March 13 2009, Beck launches 9/12 project, cries on air. Here is where it became clear that Beck was interested in more than just putting on a news show. The 9/12 project becomes a strand of the tea party movement, and not an insignificant one. Critics are hysterical because Beck cries on air.




April 15, 2009: Beck leads tea party rally at the Alamo.
This was perhaps the moment where the tea party movement really started to take hold. As the media and the White House are geniunely confused by the tea party protests (after all, taxes had not gone up yet!), Beck defines the tea party as a non-partisan movement concerned with one issue - the dramatic growth in government spending. From his opening monologue:

(The media) continues to think that the tax day tea parties are all about Barack Obama or they are all for the GOP. It’s not because they don’t try to understand, I don’t think they are capable of understanding. But since the media are watching, I am going to speak very, very slowly. As I understand it, at least the way I see it here, these have nothing to do with the Democratic party, other than the Democrats suck (roar from crowd). However, no more than the Republicans suck (even louder roar from crowd). This has nothing to do with how much Barack Obama is spending, it’s about how Barack Obama AND George W Bush AND both Congresses have been spending for years.- Glenn Beck




Farewell to the Glenn Beck TV program on Fox News. It made history and was unlike anything we have ever seen or will ever see again on TV.

Monday, June 13, 2011

What not to say after losing the NBA championship

Lebron James following the Game 6 loss to the Mavericks:
All the people that were rooting me on to fail, at the end of the day they have to wake up tomorrow and have the same life they had before. They have the same personal problems they had to today. I’m going to continue to live the way I want to live and continue to do the things that I want with me and my family and be happy with that.
Well, I wasn't rooting for him to fail, but after reading that quote, I'm sure glad he did!

Wednesday, May 18, 2011

Calling all Senate Democrats

.... it's time to do your jobs. It is now 749 days and counting since the Democratic-controlled Senate passed a budget.

Tuesday, May 17, 2011

Romney doesn't know anything about economics

Maybe that is an exaggeration, but here is my point. Conventional wisdom says that because Mitt Romney was a successful business man, that he is also a great candidate when it comes to economic issues.

Really? I'm sorry, but understanding economics and being able to manage a business are two very different things. The economy doesn't run like a business. And anyone who thinks that it can be managed like a corporation is terribly misguided.

Back in 2008, I recall that Romney was clamoring for a "stimulus!" and was mocking McCain for his proposal to cut government spending as a way to forestall the recession. And of course, you don't need to look much further than his awful health care plan for more evidence of his economic ignorance.

So this line of thinking that says "yes, I know Romney is a flip-flopper who reverses himself on issues like abortion, immigration, campaign finance, etc...but that's okay because he's great on the economy!" needs to end now.

Romney is the quintessential "pro-business" candidate. What we need is someone who is "pro-market" and understands the limitations on the role of government, both practically and constitutionally.

Romney nomination would be as if the tea party never happened and would reverse all of the progress of the last 24 months.

That is why lately I have been leaning in this direction.

Friday, May 13, 2011

Book: Selfish Reasons to Have More Kids

I recently finished the book Selfish Reasons to Have More Kids by George Mason economist and Econlog blogger Bryan Caplan, and it is a wonderful read for anyone interested in the topic of parenting or grandparenting.

Here is the book summary:
We've needlessly turned parenting into an unpleasant chore. Parents invest more time and money in their kids than ever, but the shocking lesson of twin and adoption research is that upbringing is much less important than genetics in the long run. These revelations have surprising implications for how we parent and how we spend time with our kids. The big lesson: Mold your kids less and enjoy your life more. Your kids will still turn out fine.
The book also presents this theory that most of us "overcharge" ourselves for the cost of having a child, because we overestimate the impact we have on our children in the long run. In other words, the costs of having a child are really less than we think they are.

He's not saying that everyone must have a kid, or that if you are happy with 1 or 2, that you have to have 2 or 3. He is simply presenting a point of view, one that may convince someone who is on fence to go ahead and have another child.

Yesterday, Caplan appeared on the Dylan Ratigan show. Link to video here.

Friday, May 6, 2011

T.G.I.Fla.

A week of Florida headlines:



MONDAY, MAY 2




Wearing Only a Smile, Nudists Seek out the Young and the Naked
Loxahatchee Groves, Fla.




TUESDAY, MAY 3

Nothing to see here. Move along. (Why oh why did I promise a week's worth of headlines?). I'll make it up to you later, promise.




WEDNESDAY, MAY 4



Cops: Fighting woman hid knives and drugs in her private parts and fatty skin folds
Fort Myers, FL




THURSDAY, MAY 5



Here we take a break from the kookiness to remember that Florida has its share of wonderful stories, too:



Toddler ready to go after having seven transplanted organs at Jackson Memorial.
Miami, FL



FRIDAY, MAY 6



From the sublime back to the ridiculous

Bicycling Flower Thieves Hit Orlando Florida
Orlando, FL


BONUS ROUND: the best of April

Police arrest man accused of urinating on cough drops at Walgreens
Sanford, FL




BONUS ROUND: the best of All Time



This apparently happened in March, but I just heard about it today.























Herman Cain vs. Bill Clinton

Herman Cain, former CEO of Godfather's Pizza, made quite a debut last night as a candidate for President of the United States. I am not jumping on any bandwagon - I am particularly concerned about his apparent enthusiasm for the TARP bailout back in 2008. He seems to be trying to ride the tea party wave, but since the tea party was in large part a protest against bank bailouts, this makes little sense.

But what is worth watching is the video below from a 1994 Health Care Town Hall with Bill Clinton. Cain, speaking as the CEO of Godfather's Pizza, takes on Clinton and destroys any possibility of the Clinton health care law being enacted into law in a matter of about 6 minutes.

Early on in the discussion, Cain asks Clinton: "If I am forced to do this, what will I tell those people whose jobs I will have to eliminate."

Clinton then responds by trying to convince Cain that the costs will really not be as high as he says, and then suggests that Cain would be able to pass the cost on to his customers. After all, all of his competitors would be in the same boat. And to this comment, Cain's response is simply devastating:
In the competitive marketplace, it simply doesn't work that way, because the larger competitors have more staying power before they go bankrupt, then the smaller competitor.
This is a fantastic insight. Regulations do impose costs on large corporations, but they often have a disproportionately larger impact on smaller businesses. In other words, regulations build a competitive "moat" for the larger players by making it more difficult and more costly for the smaller competitors to compete.

Tuesday, April 26, 2011

Tax burden

A friend of mine recently argued, "raising taxes slightly on the highest income earners produces large amounts of revenue. " That seems like a reasonable argument, until you take into account how few rich people there are relative to everyone else. Here are some of my back of the envelope calculations based on numbers provided by the Tax Foundation:

  • If you raised everyone's tax rate by 1% you would generate about $17 billion more from the top 1%, and about $67 billion from everyone else.
  • If you raise taxes on the top 1% by 20 percentage points, (from 35-55%), you raise about $337 billion. Raise tax rates on everyone by 5 percentage points, and you raise about $421 billion.
  • If you raise taxes on the top 1% by 50 percentage points, (from 35-85%) you raise about $842 billion. Raise tax rates on everyone by 10 percentage points, and you raise about $842 billion (not a typo).

Of course, all of this ignores behavior changes and incentive effects. If you raise rates 20 or 50 percentage points, the static analysis above would not hold, because people would go out of their way to earn less. It’s not that they would be “lazy”, the word some have used to try and disparage the supply side argument. It’s that at 85% marginal rates, people spend more time sheltering income than earning income. At 85%, the return on sheltering income would be so much higher than just about anything else you could do with your money.

Below is an amazing graph from the American Enterprise Institute. Conventional wisdom says that the payroll tax is progressive because it is capped. But maybe the proper way to measure is to take into account what everyone puts in versus what you get out. If you get more out than you put in, that is a negative tax, and if you put in more than you get out, it’s a positive tax.

The graph below from shows just who is really paying the social security tax. Hat tip to Veronique de Rugy.