December 8, 2014 archive

Make no mistake about it, Parties are machines to win elections.  When there is no electoral victory, there is no reason for their continued existence except sentiment and inertia.

Wall Street’s Democrats

Robert Reich

Monday, December 8, 2014

In Washington’s coming budget battles, sacred cows like the tax deductions for home mortgage interest and charitable donations are likely to be on the table along with potential cuts to Social Security and Medicare.

But no one on Capitol Hill believes Wall Street’s beloved carried-interest tax loophole will be touched.

Don’t blame the newly elected Republican Congress.

Democrats didn’t repeal the loophole when they ran both houses of Congress from January 2009 to January 2011. And the reason they didn’t has a direct bearing on the future of the party.

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Carried interest allows hedge-fund and private-equity managers, as well as many venture capitalists and partners in real estate investment trusts, to treat their take of the profits as capital gains – taxed at maximum rate of 23.8 percent instead of the 39.6 percent maximum applied to ordinary income.

It’s a pure scam. They get the tax break even though they invest other peoples’ money rather than risk their own.

The loophole has no economic justification. As one private-equity manager told me recently, “I can’t defend it. No one can.”

It’s worth about $11 billion a year – more than enough to extend unemployment benefits to every one of America’s nearly 3 million long-term unemployed.

The hedge-fund, private-equity, and other fund managers who receive this $11 billion are some of the richest people in America. Forbes lists 46 billionaires who have derived most of their wealth from managing hedge funds. Mitt Romney used the carried-interest loophole to help limit his effective tax rate in 2011 to 13.9 percent.

So why didn’t Democrats close it when they ran Congress?

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The Democrats’ unwillingness to close the carried-interest loophole when they could also goes some way to explaining why, almost six years after Wall Street’s near meltdown, the Obama administration has done so little to rein in the Street.

Wall Street’s biggest banks are far bigger now than they were then, yet they still have no a credible plan for winding down their operations if they get into trouble.

The Dodd-Frank Act, designed to prevent another Wall Street failure, has been watered down so much it’s slush. There’s been no move to resurrect the Glass-Steagall Act separating investment banking from commercial banking.

Not a not a single Wall Street executive has been prosecuted for his involvement in the frauds that caused the mess.

Wall Street was the fourth-largest contributor to Barack Obama’s presidential campaign in 2008, and is already gearing up for Hillary Clinton’s 2016 run.

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This must stop. America can’t tackle widening inequality without confronting the power and privilege lying behind it.

If the Democratic party doesn’t lead the charge, who will?

Addition by Subtraction

by Gaius Publius, Hullabaloo

12/08/2014 10:00:00 AM

Democratic voters again showed they don’t want corporate Democrats in office, which hands wins to Republicans. More and more it seems entirely likely – it’s at least worth considering – that to defeat Republicans, we have to take control of the party first and remove bought “leaders” who are electorally weaker than we are. Because more and more, electoral losses are on them and not on us.

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Klein compares Lieu’s electoral results to Waxman’s in the same district. Then he compares Lieu’s results to California Assemblyman Muratsuchi’s, whose Assembly district lies within Lieu’s congressional district.

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Klein offers other examples as well, including the fact that a corporatist will set up the party’s “Post Mortem” committee. (That committee will include the ultimate corporatist, Google’s Eric Schmidt.) The lesson of these examples is clear. In today’s electoral climate, progressives mainly win and corporate Democrats mainly lose. (Muratsuchi’s loss just cost the Democrats their super-majority in the CA Assembly.) Yet as seems more and more obvious, corporate Democrats in leadership positions would rather keep Money happy than keep voters happy, and it’s costing the party at the booth.

If they’re the reason the party is losing, not us, shouldn’t they be taken out first? After all, as the Piketty world grows darker and more stark, it’s our solutions that voters are looking for. Should we let “party loyalty” prevent us from giving the country and its voters what they both want and need?

In that sense, perhaps the 2014 election was a win after all. Addition by subtraction. Also, a useful signal that 2016 may not be Ms. Clinton’s Dem-corporate cakewalk and needs a rethink. Time to start challenging those “leaders” for party control? I would say Yes, and firmly.