Paul Krugman's August 3 op-ed in the New York Times, "A Test for Democrats", shouldn't have gone unnoticed here. He calls last week a "good Democrats, bad Democrats" week. Good, because the House passed the children's health insurance expansion that most Americans support by cutting subsidies to Medicare Advantage, the "privatization scheme that yhields big profits for insurers, but that the budget office estimates would cost taxpayers $54 billion in excess payments over the next five years."
Bad, because Schumer came out in opposition to fair taxation of hedge fund managers, even though it is clear that the hedge and equity funds are shorting the government by means of a tax loophold (the uncertainty over appropriate treatment of partnership "profits" interests as compensation and the long term acceptance by the Treasury that profits partners get capital gain treatment when the partner receives a distributive share from the partnership they've contributed their services to when it recognizes a capital gain.
Krugman notes two problems with the arguments for not ensuring that these investment managers pay ordinary rates on their compensation. As to the argument that low taxes are necessary to encourage risk-taking, the managers aren't risking their own money so don't need special tax breaks. As to the argument that management fees would just increase further, impacting investors' returns, Krugman resorts to sarcasm. "[A]s if someone with a $100 million a year hedge fund job would walk away if his take-home pay fell from $85 million to $65 million."
Krugman notes that "[i]f being a Democrat means anything, it means opposing this kind of exorbitant privilege."
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