May 10, 2007

‘Hug a Liberal Economist’ Week Continues (April Monthly Treasury Statement Shows Record-Shattering Receipts)

Filed under: Economy,Soc. Sec. & Retirement,Taxes & Government — Tom @ 2:10 pm

The final April results are in. The current fiscal year’s deficit is quite a bit less than half of what it was at this time last year:

0407UStreasRecsFnl.jpg

As noted previously, the April spending number was expected to go up, because April 2006′s spending was lower than just about every month before or after it in fiscal 2006. But total spending for the fiscal year thus far is still well below the 4%-5% level I assumed when I predicted that this year’s deficit will be $177 billion. At the same time, collections thus far are way higher than the 9% I was using. It would be nice to think that 11%-plus will hold, but I don’t think it will; upside surprises are, of course, always welcome, I’ll take 10% in a heartbeat.

So go and give one of your liberal economist friends a hug. They must be nearly despondent over this huge vindication of supply-side economics’ tenet that, within a relevant range, decreasing marginal tax rates will increase revenues. That case is sooooo closed.

I still think that the full-year deficit could be as high as $150 billion. But looking at the remaining 5 months, here is a not-improbable scenario: If May-September receipts come in 10% ahead of May-September 2006 (vs. 11.2% so far), and spending during that same period only increases 3.7% (the year-to-date increase has only been 3.2%), the deficit at the end of this fiscal year will be $81 billion — right where it was at the end of April.

Now just think how good economic life could be if there were another supply-side tax cut to further increase general revenues and economic growth (four separate cuts worked to do just that in the US in the 1980s, Hong Kong, Ireland, Estonia, and Iceland), Social Security privatization to save that program, and Health Savings Accounts to deal with Medicare.

(Sigh) Considering who’s running Congress, it’s only a nice dream, as a subscription-only Wall Street Journal editorial pointed out yesterday:

Still, you’d think this dramatic fiscal turnaround would cheer up Capitol Hill. Instead, Congressional Democrats seem to live in a parallel universe — one that they claim is starved for revenues, with a runaway deficit, and is dominated by the rich who pay no taxes at all. The reality is that the wealthy are financing Democratic spending ambitions, and the deficit could easily vanish within a year or two if Congress has the good sense to leave current tax policy in place.

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UPDATE: By the way, the old record for collections was set in April 2001 at $331.8 billion (April 2001 still has the all-time record for the largest single-month surplus at $189.8 billion). The new receipts record shatters the old by over 15%. Neither the previous record nor the degree by which the new one exceeds it can be found in this report — the one tomorrow’s newspapers are going to run with — by good old Martin “How Can I Minimize the Good News about the Economy Today?” Crutsinger of the Associated Press.

UPDATE 2, May 11: Skeptical Optimist has moved his projected budget break-even month up to April 2008.

Private-Equity Taxation Explained, and Why It Should Be Left Alone

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 6:09 am

From a subscriber-only Wall Street Journal editorial on Monday:

The managing partners of equity funds generally receive compensation in two ways. They charge the fund investors a 1% or 2% management fee for finding high-return business opportunities and for orchestrating the portfolio. Those fees are taxed at the personal income tax up to 35%. But fund managers also typically lay claim to a 20% slice of the fund’s future profits. That return is called “carried interest” and is taxed at the long-term capital gain rate of 15%. Congress is considering reclassifying that income as labor compensation and taxing it at the 35% income tax rate.

That’s bad tax policy for a lot of reasons. “Carried interest” is long-term, risk-based investment income derived from future profits. Those profits are anything but a sure thing. Private equity managers get nothing from their equity holding until investors get all of their money back plus a negotiated return — which is a lot different than an upfront fee or a guaranteed wage or salary that comes as a paycheck every two weeks.

Far from being a clever tax dodge, carried interest plays a central role in the performance of private equity funds: It establishes an incentive structure which aligns the financial interests of the managers and investors. “Capital gain tax treatment of fund managers is not a ‘loophole’ that is being exploited by clever equity fund managers,” explains a recent legal advisory by the law firm Nixon Peabody, “but is a well-established principle of partnership taxation that has been enshrined in the Internal Revenue Code for decades.”

Overturning this tax doctrine would have negative effects on a wide spectrum of other investment funds which use “carried interest” incentive structures, including real estate and oil and gas partnerships, and venture capital firms. Doubling the tax rate on public equity will hurt them for sure, but the lower after-tax returns will undoubtedly mean fewer deals, which will do collateral damage to investors and entrepreneurs who depend on this capital for financial sustenance. Last year a record amount of private equity investment went into the coffers of family-owned businesses — not multibillion dollar firms.

The ultimate objective of tax revisionists is to have capital gains and other types of gains on investments taxed at the same rate as ordinary income. To the extent that the money to invest came from wages and salaries, this is double taxation. Instead of debating whether or not private-equity gains should be taxed as ordinary income, the better question to argue is why capital gains are taxed at all. Short of that, capital gains, including the “carried interest” described above, should be indexed to inflation before they are taxed, as the true gain on any investment is the real (after-inflation) one.

Today’s ‘Read the Whole Thingers’ (051007)

Of course, Old Media doesn’t get the significance of the thwarted Ft. Dix attack plot, which, as Andrew McCarthy explains (HT Hugh Hewitt), is that if enough jihad-driven amateurs learn from the mistakes of others, they can become “successful” pros — just like the failed attempt to take down the World Trade Center buildings in 1993 led to ones that succeeded in 2001.

This is why I really don’t think it was wise to identify the specific store where an as-yet unnamed “current” Circuit City employee “was asked by one of the alleged terrorists to dub a Jihadist training VHS cassette into a DVD.” That employee tipped the police, ultimately leading to the investigation and the arrests. “Luckily,” bottom line-driven and ordinary turnover at Circuit City stores is very high; so there’s a reasonable chance that, despite the company’s “current” claim, the employee involved is really long gone.

Update: Only in America (HT to an e-mailer) “Brothers Charged in Terror Plot Lived Illegally in U.S. for 23 Years.” Note the news organization informing us.

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Pay Gap, Shmay Gap — Ashley Herzog, a junior journalism major at Ohio University, punctures the male-female “pay gap” myth that her professors and those in the “profession” for the most part don’t question, and in fact take seriously:

Evidence of a “pay gap” is only produced by faulty research methods that ignore the fact that men and women make different choices about education, work, and family.

First, the belief that employers get away with paying women 77 percent of what men make can only be explained by a lack of understanding of basic economic principles. If it were true, money-grubbing employers would hire only women, since it would lower costs and increase profits. We know that doesn’t happen, so feminists have invented a preposterous explanation: male businessmen care so much about keeping women “in their place” that they’re willing to lose money by hiring men. Is it just me, or do people like Donald Trump seem slightly more concerned with getting rich than maintaining patriarchy? Already, the pay gap theory has serious flaws.

Second, the 77 cents to the dollar figure is calculated by comparing the average salaries of all men to all women. It does not account for occupation, education, the number of hours worked, or the different roles that jobs play in men’s and women’s lives. The average woman earns less because she’s made different choices in life – a fact that feminists, despite all their caterwauling about the importance of “choice,” refuse to accept.

What women’s studies majors who lament about the pay gap don’t realize is that they’re contributing to it. According to economist June O’Neill, a major reason women make less than men is that they often choose college majors in lower-paying “humanities” fields, such as education, journalism, English and social work, while men are more attracted to high-paying fields like business and engineering. If women’s studies majors are so outraged by the pay gap, maybe they should all drop out and enroll in the College of Engineering. That act alone would do much more to close the pay gap than blaming sexism.

….. In every study conducted by a person not beholden to the feminist agenda, the gender pay gap is more a matter of women’s preferences than systematic sexism. If feminists are really concerned with ensuring women “freedom of choice,” why can’t they accept the fact that women don’t always want the exact same things men do?

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Maggie Gallagher exposes the charade former New Jersey Governor Jim McGreevey has been engaged in since he saw that he would have to resign as New Jersey’s governor, wrapping up thusly:

The one indisputable fact — you are the man who let your lust decide who should head up homeland security in New Jersey — is suddenly on the front page of every newspaper.

What do you do? First, you ask your wife to smile and look supportive at the press conference in which you will announce that (A) you are resigning, and (B) you are a gay American. Then you write a book, naturally, explaining how sorry you are for your mistakes, but homophobia made you do it. Leaders of groups like the Human Rights Campaign and Garden State Equality enthusiastically endorse your narrative.

But what do you do next? If you’re Jim McGreevey you do this: You try to stiff your wife out of as much money as you can, naturally. You can live in luxury with a very rich boyfriend, postponing the job of earning the big bucks you might have to give your wife a piece of. You’ve got to keep the net worth down until the divorce is over, see? So you work a little on the side, teaching “ethics and leadership” (I kid you not) to future MBAs at a public university in New Jersey. This nominal income (about $17,000 a year) will allow you to pad your pension for years at taxpayer expense without driving up the old alimony, see?

What to do with the rest of your time? Above all, do not get a real job to support your child or the wife you used and abandoned. Instead, enter the seminary. The Episcopalians are glad to oblige. Studying four days a week, with $12,000 tuition for the next three years should do it. Bonus points: You call your wife a homophobe because she doesn’t want you bringing a 5-year-old girl into bed with you and your new partner or displaying giant photos of naked men in the little girl’s presence either.

McGreevey could have pulled off none of this without Old Media’s willingness to ignore his machinations. New Jersey’s Formerly Mainstream Media appears to be willing to do (or not do) almost anything to avoid being seen as being even slightly critical of a practicing homosexual.

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Say what you want to about Ann Coulter (and many have) — She’s the first I’ve seen to notice that “all of a sudden,” “the world” doesn’t “hate America” any more. That is if “the world” includes Germany (Merkel replacing Schroder), Canada (Harper replacing Martin), Australia (Howard reelected to historic third term), England (Blair, who has been our best ally), Japan (trending conservative), China (rejecting Kyoto and telling enviros to put it where the, uh, sun don’t shine) — and now France (Sarkozy replaces Chirac).

There is a downside, as Coulter notes:

American celebrities who threaten to move out of the country every election rather than live under a conservative leader are running out of countries to move to.

Note to Dems: Revise your talking points, unless you want us to think that your “world” consists of NoKo, Iran, Russia, the world’s terrorists, and every tinpot dictatorship with a seat at the UN.

Better yet, name the countries that still don’t like us — You’ve got a good track record of helping them go conservative once they see or experience the alternative.

Update: Oh, here’s a third alternative congressional Democrats are hard at work on “How to Lose an Ally“) — treat friends like dirt. Example: shunning someone like Alvaro Uribe, the leader of Colombia who has done a marvelous job turning things around in that ravaged country.

Positivity: Saved by 911 Call from Trunk

Filed under: Positivity — Tom @ 5:59 am

From Columbus, Ohio:

Kidnapped lawyer tells of 10 tense minutes
Monday, April 30, 2007

The 911 dispatcher asked: What’s your emergency? Ira B. Sully, 59, had a doozy. “I’ve been kidnapped, robbed, and I’m in the trunk of my car.” Furthermore, Sully reported via cell phone, the man who had done it all was still driving.

Sully has been a lawyer since 1974. An admitted workaholic, he often slogs away in his S. Front Street office late into the night, tending to the legal matters at hand. He specializes in business and real-estate law, wills and probate.

“The kind of things that don’t make good cocktail-party conversation,” he said.

Just after midnight Saturday, Sully walked from his office door to his 2003 Chevrolet Cavalier. One of its rear windows had been recently busted out by a thief, but that crime was about to become far less significant.

The robber came from behind. Sully heard him and turned around.

A bandanna covered his face. His hand held a gun. He demanded everything.

“He said a couple other threatening things,” Sully said. “You don’t want to die,” or this and that.”

The man took his wallet and keys and had him lie on the ground. He demanded Sully’s bank-card PIN. With a second to decide, Sully gave him the correct number.

The man opened the trunk, moved the bottled water and office supplies inside to the back seat, and ordered Sully in.

The trunk slammed shut. The car started moving.

Sully knew how to release the trunk from the inside. He also had his cell phone.

The car stopped. He had a decision to make. Open the trunk and run, or call the police?

He chose the phone.

The car started to move again. Sully described the robber and his car to the police. Within a minute or two, while he was still on the phone, the car stopped and he heard someone ordering the driver out.

The trunk opened. A city police officer had spotted the car at Whittier and Front streets and pulled it over.

Sully was unhurt.

Police have charged Martino S. Williamson, 20, of 1808 S. 6 th St., with aggravated robbery and kidnapping. Police said Williamson used a German Village bank ATM to withdraw cash from Sully’s account. The money was recovered.

From kidnapping to rescue, about 10 minutes had passed.

Had it lasted longer, Sully said, he would have been more frightened. Only in retrospect did he envision more sinister outcomes, question why the robber took him along, and wonder what might have happened if he’d made other choices.

“It’s easy to make light of it now,” he said.

Sully has lived in German Village for more than 30 years and worked on S. Front Street for more than 20. He’ll call it quits at the office a little earlier from now on but otherwise doesn’t plan to alter his life. Yesterday afternoon, he was already back at work.

“I’m a big fan of working and living in (the) central city,” he said.

And now, he can pretty much guarantee a captive audience at the next cocktail party.