Economics
And now, a moment of populism
Jun 8th 2010, 17:51 by R.A. | WASHINGTON
Have a look at this Bloomberg story:
Billionaire Edward Lampert may have found a way to shield himself from millions of dollars in taxes under legislation that would raise levies on profits at private- equity firms.
ESL Partners LP, the Greenwich, Connecticut, hedge fund Lampert started more than 20 years ago, and affiliates distributed about $829 million of stock...to him on June 2...
By taking direct ownership of the shares, Lampert would be taxed at the capital-gains rate of 15 percent when the stock is sold, rather than the ordinary income rate of 39.6 percent that his fund would have to pay under the bill, according to Robert Willens, whose New York-based firm analyzes tax and accounting rules for Wall Street clients. Lampert is ranked 316th on the Forbes list of world's richest people, with an estimated net worth of $3 billion.
"It's totally an astute thing to do," Willens said in a telephone interview. "It doesn't take a fortune teller to predict that we are going to see a lot of this activity between now and the end of the year."
The economist thing to say is that it's obviously rational to avoid taxation when possible, and this is why governments need to take heed when designing tax regimes. Individuals will do what they can to avoid paying, either by reducing the taxed behaviour or acting to take advantage of loopholes. And the rich will be best able to do this.
But let's be honest for a moment. According to this Bloomberg story, Mr Lampert is worth $3 billion. If he earns just 1% per year on that fortune"”and he certainly earns much more"”then he takes home $30 million in income. Per year. That's 600 times the median household income in America. It's more money than a person can reasonably spend. With that much money you can binge every day, and yet the money will just keep accumulating.
And yet Mr Lampert feels he needs to take special steps to avoid paying the regular income tax rate for individuals in the highest tax bracket, which begins at around $373,000 (the 15% bracket, by the way, begins at $8,375 for an individual). Obviously, most of the people bringing home that level of income are generating it in wages and salary, and they have no choice but to pay the income tax rate. I'm sure if you approached Mr Lampert and told him he didn't work for his money, he'd bristle at the suggestion. And yet he wants to continue to take advantage of the silly rule by which the money hedge fund managers make from doing their job is taxed as capital gains rather than income.
As far as I can tell, this is entirely within the law. But I don't think it's improper to declare it obscene. Shameful, even. With a fortune of that size, additional wealth is about little more than score-keeping. You can afford to be a grown-up and pay the same taxes as everyone else.
It sounds horribly populist to say so, but the fact that this kind of behaviour is lauded in the financial press when it ought to be scorned is a real problem. It's a problem in that it reveals big money men to be as brazen in their behaviour as they were before the crash. But it's also an indicator that something remains broken in America's attitude toward wealth.
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Populist? No.
Mr. Lambert a rent-seeker. Yes.
Regards
That's not rent seeking. Rent seeking is when you bribe a politician to have the state give you priveleges other don't have.
RA assumes that the state has a right to all of Lambert's wealth and therefore Lambert is being obscene by withholding it. Is the state now a charity for orphans in RA's mind? Is there no limit to the state's lust for other people's money? RA seems to think the state should get as much as it wants when it wants with no limits whatsoever. In my book, RA has the obscene attitude, not Lambert.
Lampert.
Anyone want to calculate the "return on investment" of his campaign contributions? ---
This why we MUST raise the retirement age of Social Security, or increase the tax, or reduce the future benefits.
The poor are to poor to pay. The rich give money to politicians. So who's left to pay for the debts that Reagan and Bush43 rolled up? Toss in Obama and the Fed, to bail out the rich investors. ---
Careful R.A., you are going against the Economist's editor who believes that tax cuts for the rich solve everything.
As the chart shows, the last time the gap between the richest and the poorest was this large, was during the Great Depression.
Regards
fundy,
A campaign contribution IS a bribe! A special tax cut IS a priveledge!
Regards
Shameful and obscene? I'd use a noun to describe Lampert. He's a thief.
It's not either/or, it's both/and.
Yes, there is something broken in our attitude toward wealth. "Be on your guard against every form of greed, for not even when one has an abundance does his life consist of his possessions" - Jesus (but I'm too lazy to look up the reference).
And yes, the government believes that it has the right to, not all of my wealth, but at least all of the excess, and that belief is also a major problem.
This highlights another issue. When the dialogue from the right is the "unfairness" that the rich pay more while the poorer may not pay more than a pittance in federal income taxes, they not only leave out payroll taxes but the ability of the richer to manipulate income and to avoid income tax.
Nice post. Just as regressive taxes are going up to help finance local and state deficits the rich are still raking it in manipulating the tax code to their favor.
@fundamentalist: The obscenity is that Lambert feels entitled to pay a much smaller proportion of his income to the state as people much less fortunate than him. The state does not claim a right to all of his wealth as you disingenuously state. Society claims the right to expect Lampert to contribute a similar proportion of his earnings to the ongoing health of the commonweal, from which his wealth ultimately derives. Without a society to serve and grow rich doing so, Lampert has nothing. But you know that already.
Also, it's not populism to be outraged at this, it's common sense. There are many studies that show that the more equal a society is in the way of economic distribution, the happier and wealthier they are.
Populism apparently has come to mean "thinking a winner-takes-all country is a bit of a poor show, when you right get down to it." I suspect it is because the real populists have already asphyxiated from screaming impotently about the coming apocalypse...
This is simply an illustration of the problem whereby money = speech, and thus everything is for sale, including tax rates. Worse, I suspect Mr. Lampert feels that he deserves every penny and the tax breaks those like him have purchased.
I would say that labelling "populist" any attempt to point out that there are people who earn way more than they (will ever) need, and that as such they should be taxed more than the other "high earners" - and especially prevented from making use of various tax loopholes, would be totally and utterly wrong, misleading, even outright dangerous. I don't want to wait and see if people like that will decide, at some point, to fund a charitable organisation or give their money to whatever good cause. They have lot more than they need right now, and equally right now there's ways to put their excess money to good use.
R.A. I applaud yor courage and I hope you'll be able to keep your job. The fact that there is a long list of research done in this area and evidence (ethical and economical) of what you are saying, that you can sue your employer succesfully if they do fire you on this account.
Get rid of the preference for capital gains, except for the very long term.
Putting the wife to work and hocking the house are all used up now. They have provided the illusion of advance to the American working class for decades, but the reality that they are going nowhere will be far too obvious for pretending from now on. This will make people very angry, and the rich ought to be worried.
Nothing like talking about wealth to bring out the envy in all of the socialists.
hedge: "A special tax cut IS a priveledge!"
Lambert didn't have a special tax cut. He accepted one available to everyone in his position.
msgkings: "The obscenity is that Lambert feels entitled to pay a much smaller proportion of his income to the state as people much less fortunate than him."
Lambert is not paying less in taxes than those less fortunate. He is paying less in taxes than those who are less astute. We have a progressive tax system which makes it nearly impossible for wealthy people to pay less in taxes than less wealthy.
msgkings: "Society claims the right to expect Lampert to contribute a similar proportion of his earnings to the ongoing health of the commonweal, from which his wealth ultimately derives. "
A from where does society derive that right? Marx? The state has a right to tax citizens so that it can perform its God-given duty of protecting life, liberty and property. It does not have a right to expect more than that. And Lambert does not derive his wealth from society. That is a medieval view of wealth. If Lambert got his wealthy by legal and moral means, then he did so by producing something that other people want and considered a good value. Otherwise, they wouldn't have bought it. Lambert is entitled to all that he earns honestly. And Lambert is paying his fair share if he obeys the law. Lambert didn't create the tax code, he merely understands it better than others.
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