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War in Wisconsin

March 8th, 2011 2 comments

Wisconsin Budget Protesters in the SnowLast month saw war break out in Wisconsin, over labor unions. In case you missed the headlines, this is basically how it went down:

Gov. Scott Walker: We have a budget shortfall and we have to make some hard choices. Therefore I’ve proposed a bill to destroy labor unions in Wisconsin.
Democratic State Senators: What??? We’re not going back to the Gilded Age!
Walker: What’s wrong with the Gilded Age?
Dems: We were willing to negotiate benefits and compensation, but getting rid of collective bargaining rights would mean families could just get steamrolled by their employers!
Walker: Oh, speaking of steamrolling, we Republicans control a majority of the State Senate, so you can’t really stop us.
Dems: Wait, it says in the State Constitution that the Wisconsin Senate needs at least 3/5 of its members present to vote on budgetary issues… if we don’t show up, they’ll be one short and can’t pass the bill!
Repubs: What??? Ok, well it also says the Seargant at Arms can “compel” the attendance of absent members…
Dems: We’re leaving the state – compel this! (Obscene gesture)
Sergeant at Arms: State troopers, after them!
State troopers: Too late, sorry. By the way, are you taking our bargaining rights away?
Repubs: No, you guys and firefighters are exempt. Because we like you.
News Media: Breaking news! Wisconsin state senators are hiding in another state and pro-union protesters have swarmed the Wisconsin Senate waving Egyptian flags!
American Public: WTF??

Now at this point in the story, if you’re like me, you might’ve just thought, wow, the Republicans are acting like jerks and the Democrats like children. I mean, the union-busting thing is harsh and radical, but running away and hiding out of state? Really?
But then things got more interesting:

Walker (picking up phone): Hello, who is this?
Liberal blogger: Oh hi Scott, this is David Koch, the oil tycoon who helped fund your campaign. How’s it going crushing those union bastards?
Walker: We’re holding strong. I’d be willing to talk to the Dem leader only if all 14 of them come back and sit in the assembly. When they do that we’ll have quorum, and then we can pass the bill behind their backs during the recess.
Liberal blogger: Beautiful. We’ll back you any way we can. We were thinking about planting some troublemakers in the crowd.
Walker: We thought about that, but if the protesters cause a ruckus it might make people call on me to solve the problem. Better to let them protest until the media stops finding it interesting.
Liberal blogger: Well, once you crush these bastards I’ll fly you out to Cali and really show you a good time.
Walker: Alright, that would be outstanding.

——————————-Later——————————-

Liberal blogger: Hey everybody! Listen to this prank call I recorded!
Walker: You gotta be kidding me.
American Public: WTF?
Walker: I just want to talk to the Dems…
Adm. Ackbar: It’s a TRAP!!!
Dems: What a corrupt a-hole!
Walker: Everybody calm down, I’m just doing what is necessary for the budget.
Dems: But there wasn’t a budget shortfall until you cut corporate taxes!
Wisconsin fiscal bureau: Actually, Wisconsin might end the year with a surplus.
Repubs: Blah, blah, blah, why do liberals just want to start class warfare all the time?
John Stewart: Doesn’t taking money from teachers and giving it to bankers count as class warfare?
Shep Smith of Fox News: There’s no budget crisis. This is purely political. Unions contribute big time to Democrats, so if you bust the unions, you bust the Democrats.
MSNBC: Wow, we agree with… the Fox News guy.
Walker: Big unions are dragging down the economy and getting in the way of responsible budgets.
Economists: Actually the five states prohibiting collective bargaining are in much worse budget crises than Wisconsin.
Walker: Well, I’m doing what’s best for Wisconsin.
Pollsters: A majority of Wisconsinites oppose Walker’s plan.
Dems: See, we’re not just being dicks.
News Media: The protesters are growing in number and not relenting. Protests are spreading to other states with similar measures being debated.
John Stewart: It’s the “Bizarro Tea Party” – the liberal grassroots are waking up!
Glenn Beck: These protests are part of an Islamo-socialist alliance that is spreading across the globe, starting with the revolutions in the Middle East!
American Public: WTF?
Repubs: Well we’re going to fine the Dems $100 for each day they’re absent and pass a resolution ordering their arrest!
Legal Experts: We don’t think that’s legal…
Green Bay Packers: We stand with the protesters.
Charlie Sheen: Winning!

And that pretty much wraps up the War in Wisconsin so far.

Categories: Deficit/Debt, Economy Tags: ,

Tax Changes on Carried Interest- Necessity or Nemesis?

April 27th, 2010 No comments

No one wants to be "against" a jobs bill. (Photo: Sierra Club)

In the midst of unrest over budget deficits and November just around the corner, Democrats have been scouring for low hanging fruit. One proposal that keeps surfacing is the idea of changing the tax on carried interest.

For those of you who don’t know, carried interest is an incentive that is commonly used within the investment industry to encourage fund managers to maximize the funds performance. Essentially it is a chunk of the capital gains earned by the fund. Currently carried interest falls under the purview of the long term capital gains tax-roughly 15%. For years, however, Democrats have proposed taxing carried interest as ordinary income, thus raising the rate to as high as 33%.

It is important to note that to receive carried interest, a manager must return all capital contributed by the investors, and, in certain cases, meet a previously agreed upon rate of return (the hurdle rate). The point being, that if these funds don’t do well, the managers get nothing. It takes a trained eye to invest properly, and those individuals need to be compensated for wise investment decisions.

The investment industry is the key driver behind American business-big and small. Private equity funds raised capital totaling $240 billion in 2006 alone. Without these organizations, the capital needed to encourage growth simply wouldn’t exist. And in a time where we are struggling to pull ourselves out of an economic recession, raising tax rates on carried interest by 133% simply isn’t a smart move.

a visual explaination of carried interest

During the recent Jobs bill debate, the idea of taxing carried interest as ordinary income became a serious option of the table. $17.5 billion was a little too much to sweep under the carpet. Democrats knew they couldn’t go back to their districts and say “ we just added this on to your taxes.” At the same time, no one wants to tell their constituents that they voted against a “Jobs” bill. How could anyone be against jobs right?

When it was all said and done Congress decided to fund the Jobs Bill by giving the IRS tools to crack down on oversea tax havens, and by closing a loophole that investors had been using to avoid tax payments on dividends.

But the carried interest debate is far from over. With finance regulatory reform on the table, and congress looking to place shiny pieces of legislation before the president, easy cash grabs like carried interest are likely to come up again.

While finding funding for legislation is becoming more difficult, carried interest is something we should let be.