Obama Gets His Groove On

It's the Math!  If only that was more often declared in Washington D.C., a basic arithmetic test required of all elected representatives, we wouldn't be in the mess we're in today.

 

 

The White House has released their deficit reduction plan. First off, it seems the White House's PDFs have gotten larger, which in terms of actual specifics is a better sign. Of course it's interwoven with grand sounding phrases and other soaring political rhetoric that shines over the empty sky of generalities.

Maybe more specifics might help put the focus on what the administration's proposal is, instead of news covering pundits and sound bytes. The GOP shouts it's class warfare!  Yes, it is.  Corporations and most politicians have been waging war on the U.S. middle class for years. They outsource their jobs, raid their retirement, depress wages and foreclose on their homes.

By now most know the plan is $3 trillion additional deficit reduction over 10 years. Since more of the press has covered generalities and focused on the tax the rich part of the proposal, read the actual plan for yourself. It's in English, somewhat dense, but you should be able to follow along at home. The reason you want to read the plan yourself is because every news outlet, every cable show, ever blog and every tweet is someone's opinion, instead of what the plan actually says. Below are some details, pulled from the plan text, that you might actually like.

The plan caps federal contractor's executive compensation. Think about it. If a corporation wants to obtain federal contracts, they cannot pay their executives exorbitant fees. This is a clever way to cap CEO pay or make a dent, although it appears almost too low for incentives. (p. 21)

Another detail in the plan is who knew crop insurance was such a racket? It's another on the chopping block:

Crop insurance is a foundation of our farm safety net. Our Nation’s farmers and agricultural bankers understand the value of this effective risk management program, and currently 83 percent of eligible program crop acres are enrolled in the program. However, the program continues to be highly subsidized and costs the Government approximately $8 billion a year to run: $2.3 billion per year for the private insurance companies to administer and underwrite the program and $5.7 billion per year in premium subsidies to the farmers.

Another piece in the bill is to only allow patent holders of some pharmaceutical drugs 7 years instead of 12 for exclusive rights to manufacture and stops the practice of slight patent modifications in order to extend exclusivity to a drug. What happened to the concept of drug patent cross-licensing is not mentioned.

It appears President Obama is planning on lowering the corporate tax rate from the plan details and then remove a host of tax deductions, with the exception of tax deductions for U.S. investment and hiring. We'll see, this is the great political football and finding out what is actually legislation often would happens long after a bill is passed. Currently, multinational corporations, who can afford divisions of corporate tax attorneys, offshore outsourcing and tax havens pay almost no U.S. tax, while the smaller businesses, without those resources, pays more.

Here is where Obama is going after hedge fund managers and the text is a reasonable explanation of how hedge fund managers and others investing in the markets, through partnership business entities, pay 15% capital gains tax on income instead of 35%.

Tax carried (profits) interests as ordinary income. A partnership does not pay income tax; instead, the income or loss and associated character flows through to the partners who must include such items on their individual income tax returns. Certain partners receive a partnership interest, typically an interest in future profits, in exchange for services (commonly referred to as a “carried interest”). Current law taxes the recipient of a carried interest on the value at the time granted, which may be based on the value the partner would receive if the
partnership were liquidated immediately (for example, the value of an interest only in future profits would be zero). Because the partners, including partners who provide services, reflect their share of partnership items on their tax return in accordance with the character of the income at the partnership level, long-term capital gains and qualifying dividends attributable to carried interests may be taxed at a maximum 15-percent rate (the maximum tax rate on capital gains) rather than at ordinary income tax rates.

The President is proposing to designate a carried interest in an investment partnership as an “investment services partnership interest” (ISPI) and to tax a partner’s share of income from an ISPI that is not attributable to invested capital as ordinary income, regardless of the character of the income at the partnership level. In addition, the partner would be required to pay self-employment taxes on such income, and the gain recognized on the sale of an ISPI that is not attributable to invested capital would generally be taxed as ordinary income, not as capital gain. However,any allocation of income or gain attributable to invested capital on the part of the partner would be taxed as ordinary income or capital gain based on its character to the partnership and any gain realized on a sale of the interest attributable to such partner’s invested capital would be treated as capital gain or ordinary income as provided under current law.

There is a huge however in the attempts to get profits taxed as ordinary income:

any allocation of income or gain attributable to invested capital on the part of the partner would be taxed as ordinary income or capital gain based on its character to the partnership and any gain realized on a sale of the interest
attributable to such partner’s invested capital would be treated as capital gain or ordinary income as provided under current law.

Additionally this change will affect venture capitalists, not just hedge fund managers. VC firms invest in start-ups and when they hit it big, they make billions. That said, there are huge risks in funding a start-up and even the plain laid plans are subject to failure. A technology start-up usually requires millions just to get it's feet off the ground and the idea a guy in a dorm room magically creates a mufti-billion dollar enterprise is mainly a myth.

While nailing hedge fund managers and others who do not bring much value to the real or production economy is a good idea, perhaps for Venture capitalists, who do create jobs, wealth, even new industry sectors, there needs to be a large tax incentive offset.

I have one. Require VC's to hire U.S. citizens, first and foremost, and all production, business activity be located in the United States, in order to obtain a 15%, or capital gains tax treatment on all profits. You want to see, magically, all sorts of people be hired and trained, a blossoming cloud of U.S. manufacturing? That would do 'er. Wouldn't that be nice instead of venture capitalists requiring business plans have a China strategy. Many VCs today will not fund a U.S. start-up unless they plan on manufacturing in China and offshore outsourcing some tech jobs to India.

Say it ain't so, but some Buy American and Hire America tax incentives associated with investment capital would be a nice carrot to this stick.

Say what one will but at least Obama came out swinging for a change and it clearly threw the typical rhetoric on taxes off of it's A game, at least for a few minutes.

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Comments

I know it's rare for any positive on Obama

I do think this is the first time I can remember him recommending policies which he knows the GOP will block at every turn. I cannot recall another event like this. Of course this doesn't negate the promotion of policies such as more H-1B workers, bad trade deals, bank bail outs and so on which are terrible for the U.S. middle class, but credit when it's due here I think.

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Overpaid CEOs

Egregious executive compensation, especially for CEOs, really is a huge populist issue. I'm sure of that. People have been disgusted since before 2008, and since then, the bottom has fallen out of the opinion polls.

However, as David Cay Johnston recently points out, most corporate executive compensation is dropping currently.

On the other hand --

Many CEOs get paid far beyond what economic theory says is necessary to motivate them. Worse, a fair number enjoyed soaring pay while shareholders saw their wealth dwindle, as with John Snow when he ran the CSX Corp railroad company. When Snow left to become Treasury secretary his pay had grown 69 percent, while the price of CSX shares fell as much as 64 percent, just one of many disconnects between CEO pay and performance.

-- excerpted from Johnston's Reuters blog "Shrinking corporate officer pay"

This relates to remark by Robert Oak on the President's tax reform proposals contained in his deficit reduction plan --

"The plan caps federal contractor's executive compensation. Think about it. If a corporation wants to obtain federal contracts, they cannot pay their executives exorbitant fees." -- Robert Oak

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Creative thinking

Here's creative thinking at its best.

Here is Robert Oak's proposal to link tax reform to one of many practices whereby the USA economy is subject to what amounts to sabotage from within by way of outsourcing everything from the first business plan on out to the ultimate profits -- the latter "outsourced" into the wonderful world of WTO "competition," where you can give the proverbial finger to the IRS (as well as to your local schools and other infrastructure) and get away with it.

Robert Oak --

Require VC's to hire U.S. citizens, first and foremost, and all production, business activity be located in the United States, in order to obtain a 15%, or capital gains tax treatment on all profits. You want to see, magically, all sorts of people be hired and trained, a blossoming cloud of U.S. manufacturing? That would do 'er. Wouldn't that be nice instead of venture capitalists requiring business plans have a China strategy. Many VCs today will not fund a U.S. start-up unless they plan on manufacturing in China and offshore outsourcing some tech jobs to India.

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they have to have this

and tie it to U.S. citizens. Right now, they like to import foreign guest workers and claim, magically they are the only ones who innovate, create. It's simply not true and it's almost discriminatory against American entrepreneurs. With *that said*, there are (for real) people from all over the globe who come up with true innovation and want to form start-ups with that very innovation in the U.S. But currently it's almost "immigrant preferred", often due to ties (they believe) to the home country for workers, even markets and that's just crap.

Glad to see someone read this. I was thinking the silence is due to I finally wrote a positive on Obama, true, a rarity but frankly presenting better proposals and just daring the GOP instead and pushing to override these people is the way to go.

People voted for that soaring rhetoric and campaign promises, they sure did not vote for Larry Summers and Tim Geithner.

Glad you like it and no doubt it would be challenged as a "barrier to trade" or some crap but at this point I think they need to tell the WTO and so on to go to hell. (or should have a good 15 years ago).

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People didn't vote for Obama

People didn't vote for Obama to shove that health care package down the throats of America. He pursued health care against the strong objection of this country and it cost him the House in 2010 and it looks like it's costing him re-election.

He never recovered from that.

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people didn't vote for Obamacare, true

They did vote for single payer, universal health care, or the plans promised during the campaign.

The radical right twisted all of this into a campaign but their agenda is to turn health care into a worse mess than it is, whereas the base wanted single-payer, universal health care, heavy focus on getting the for profit health insurance companies, big pharma, not making profits over the bodies of Americans.

Obama gave insurance industry much of what they wanted and I'm pretty sure all of America didn't want that.

But read the proposals of the radical right, they are even worse, if that's possible. We'll have people dying and not being able to afford health care all over the place. Ryan is the worst of the bunch, he's basically privatizing Medicare and kicking seniors to the curb.

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WTO Humpty Dumpty hypocrisy

"At this point I think they [the people] need to tell the WTO and so on to go to hell. (or should have a good 15 years ago)." -- Robert Oak

This being the last day of summer, with little if any good news on fundamentals, who needs this? But the jury is in, and the verdict is 'Guilty as Charged' for the WTO's quasi-judicial system for resolution of trade disputes. Click here to download Public Citizen's PDF 'Fatally Flawed WTO Dispute System' (one-page summary with tables presenting survey results).

Humpty Dumpty public domain clip-art   "When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean — neither more nor less."
   "The question is," said Alice, "whether you can make words mean so many different things."
   "The question is," said Humpty Dumpty, "which is to be master— that's all."

Humpty Dumpty, sitting on his wall. (Thanks to PublicDomainClip-art.blogspot.com)

_________

It doesn't matter about the grand humanistic pretensions of GATT, GATS or any of the other treaties, because it all comes down to that these provisions mean nada-zero-zed-zip when WTO Appellate Body panels ignore them. And that's how the cookies crumble in the vast majority of cases.

EP-linked Eyes On Trade blog, 'WTO is the big kid on the seesaw', surveys the record on WTO quasi-judicial proceedings to find that odds are like 20-to-1 against WTO ruling for any defense or claim under treaty provisions for food and product safety or any of the "allowed" exceptions enumerated at GATT Article XX, GATS Article XIV or elsewhere. This conclusion is based on a summary of recently compiled database, now available to the public at the World Bank.

"(Major thanks to Travis McArthur for his research for this post, and to Henrik Horn and Petros C. Mavroidis, creators of a database of the WTO disputes.)" -- Eyes On Trade

The database can be accessed courtesy of World Bank research archives at following  link.

In short, the WTO bureaucracy-kleptocracy, makes a charade of any notions of due process! The irony is that theoretical support for 'free trade' is, and always has been, based on supposed advantages for "the consumer" -- even if producers may suffer.

We were told in advance about the brave new world of WTO globalism, that there would be "winners and losers." That's true of any casino, so we accepted it. But we weren't warned that the games would be rigged against us!

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WTO Alpha and Omega

It's well that we can recall that there was international trade before WTO and there will be international trade after WTO ... because ...

 

Humpty Dumpty sat on a wall.

Humpty Dumpty had a great fall.

All the King's horses and all the King's men

Cannot put Humpty Dumpty together again.

--- Mother Goose

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White House happy face on trade

The White House is trying to keep the happy face up, so as not to lose face.

Of course, the same rhetoric has been used before Obama -- during the Bush administration and the Clinton administration. However, Bush and Clinton have already retired into the world of the multi-nationally rich and famous, so right now Obama is all we have to kick around

The Obama administration has made enhanced "trade enforcement" (read: defending U.S. interests in dispute settlement) a key part of its rhetorical attempts to build legitimacy for deeply unpopular trade policies. It seems hard to make that case if you don't use any and every opportunity to invoke the exceptions, or ... push for amendments to the WTO to strengthen them.

One other factoid to leave you with: the Obama administration is trumpeting its decision to appeal the adverse rulings in the recent attacks on consumer safety. But in only five out of 167 settled cases have appeals resulted in “losses” turning to “wins” ... over 95 percent odds against ...

-- from Public Citizen's EyesOnTrade blog 'WTO-is-the-big-kid-on-the-seesaw'

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