Shake Down For Campaign Contributions

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Our focus for May 11 is "Debtor Nation" by Louis Hyman, available from your local library, or from Amazon.com for $29.35 + shipping.

Louis Hyman is a 2007 PhD in American History from Harvard who became an Assistant Professor of History at Cornell's School of Industrial and Labor Relations. His book, released 1/23/2011, is an update and embellishment of his doctoral dissertation which was entitled "Debtor Nation: How Consumer Credit Built Postwar America."

It was recommended by June Taylor (aka Utah Owl) because she had attended the Sundance Film Festival this past winter where she saw "The Flaw" which is a documentary directed by noted British filmmaker David Sington (e.g., "In The Shadow Of The Moon") and produced by Christopher Hird (e.g., "The End of the Line"). It was purchased during the Festival by New Video for commercial distribution later this year under its Docudrama Films brand.

"The Flaw" explores the reasons for the 2008-20?? crash of the American economy with interviews of two dozen noted economists, as well as Wall Street insiders and victims of the crash. The film's title is inspired by former U.S. Fed Chairman Alan Greenspan's acknowledgment in testimony before a Congressional investigating committee that there had been "a flaw" in his model of how the economy worked.

June reported that the Sundance screening of "The Flaw" was followed by a Q&A session featuring David Sington and Louis Hyman during the course of which Sington credited Hyman's book with explaining the "why" of the crash -- that Sington had expected the Wall Street experts to provide the "why" but all they could provide was the "how"!!! Sington gave Hyman major credit for Sington's understanding of the crisis, and the story line of the film.

About his doctoral dissertation, Louis Hyman has written --

"My dissertation is about how what we call personal debt, that is debt incurred by individuals and not by businesses, went from being owed to other people to being owed to institutions, and what this has meant at the largest level about American capitalism. In the dissertation, Debtor Nation: How Consumer Credit Built Postwar America, I wanted to know how personal debt, which was at the end of the nineteenth century illicit, illegal, and always personal, became by the end of the twentieth century legal, institutional, and shockingly condoned. How did it move from the smoky backrooms of loan sharks to the brightly lit boardrooms of multinationals? How did it move from the margin of capitalism to its center? How did consumer credit become a site of investment and profit, and by the choice of these investments, what was left out? What other investments did consumer credit lending crowd out? How did this growth of consumer credit reframe the largest business narratives of the twentieth century-the second industrial revolution at the beginning of the century and so-called "deindustrialization" at its end?"

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Ordinarily, we post at a minimum book reviews from the NY Times, Washington Post and/or Wall Street Journal in this "Reference Materials" forum.

Debtor Nation does not appear to have been reviewed by any of those publications.

Nevertheless, this “Reference Materials” forum is still provided for any other materials that any of our members would like to post.
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Shake Down For Campaign Contributions

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Editorial Note:

Many of you may recall Reading Liberally’s 2/14/2008 meeting which focused on “"The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity" (Alfred A. Knopf 2007) by Richard Kuttner, former 20-year columnist for Business Week and “Homo Politicus: The Strange and Scary Tribes That Run Our Government” by long-time Washington Post columnist Dana Milbank.

The central thesis of both Kuttner and Milbank is that nothing happens in Washington except as a result of “campaign contributions” which are de facto bribes. Which is why the subject of our meeting was “The Best Government Money Can Buy”!!!

However, they went on to make the point that the “campaign contributions” are often the result of “EXTORTION” BY THE POLITICIANS rather than “bribery” of the politicians -- as the politicians “shake down” the victims of potential legislation that the politicians are threatening.

Indeed, Exhibit A for “extortion” by politicians was Candidate Obama’s commitments to hedge fund managers that he would continue to permit them to receive capital-gains tax rates on their compensation if they would contribute to his campaign.

[Since that was such a high-profile issue, revoking the capital-gains rates for their compensation has been high on the list of every deficit-reduction commission -- and the divorce between hedge fund managers and President Obama has been the subject of numerous media articles that have reported that hedge fund managers are ready to contribute to the political campaign of the President’s opponent.]

So now comes the following interesting article about how the Obama Administration is considering a corporate-tax “reform” that will impose corporate-level taxes on large operating partnerships (some of the world’s largest economic enterprises are large oil & gas partnerships that skirt the “publicly-traded partnership” rules which would trigger the corporate-level tax).

The proposal will also probably capture some of the large hedge funds with the tightened “publicly-traded partnership” rules.

And it will also probably (though details are not available in the WSJ article) tighten the requirements for “Small Business Corporations” (“S Corps”).

SO WHATS UP???

The Obama Administration may only playing the usual EXTORTION-OF-CAMPAIGN-CONTRIBUTIONS game by threatening these groups with adverse tax provisions.

SO WHAT’S THE RELEVANCE FOR OUR 5/11/2011 MEETING???

John Karls proposed three Six-Degrees-Of-Separation E-mail Campaigns (please see the Suggested Discussion Outline posted on this Bulletin Board), the first of which calls on President Obama to announce immediately that he will veto any legislation that includes the recommendation of his Deficit Reduction Commission that U.S. companies that export American jobs should be exempt from corporate income tax on their profit from exporting the jobs.

If we take no action, the Obama Administration will probably accept “campaign contributions” from the same American-job-exporters that presumably gave “campaign contributions” to the members of President Obama’s Deficit Reduction Commission to put in their report that U.S.-based companies that export American jobs will be exempt from corporate income tax on their profits from exporting American jobs.


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Wall Street Journal – 5/7/2011

Plans for Slashing Corporate Taxes Worry Some Firms
By JOHN D. MCKINNON

Obama administration officials are preparing a business-tax overhaul that would cut corporate rates significantly. But even before it's rolled out, some possible elements of the plan are stirring concern among companies that could see their taxes rise, notably some big businesses that are currently taxed as small ones.

It's an early sign of the complications that lie ahead as President Barack Obama and lawmakers seek broad changes in business taxes at a time of deep deficits. They are aiming to make the convoluted tax system more competitive, but can't afford to reduce the overall take. That could mean pain for some sectors as the tax bite is redistributed rather than reduced.

Numerous options remain under consideration, and a final decision about how to proceed could be weeks away. Under the current thinking, Treasury officials would propose lowering the U.S. corporate rate from the current 35%, among the world's highest, to the upper 20s.

To offset the lost revenue that would come with a major rate reduction, the plan would likely call for reducing or eliminating major business deductions, such as for accelerated depreciation. (Lowering the rate to 25%, roughly the current average among developed countries, may require nixing too many breaks to be politically feasible.)

But in addition, administration officials have been considering ideas that could result in different tax treatment and possibly higher taxes for some large businesses that are organized as small businesses, according to people familiar with the situation. In particular, small-business representatives worry that the administration will seek to force the largest of those businesses to pay corporate taxes in addition to what they pay now.

Currently, many businesses such as partnerships, limited-liability companies and Subchapter-S corporations pay tax only through their owners' personal tax returns. Such entities, known collectively as "pass-throughs," have exploded in the U.S. over the past 30 years, in large measure as a way of avoiding corporate-level tax. They now account for about half of business net income and employ more than half of private-sector workers.

Some large U.S. businesses are organized as pass-throughs, including private-equity, law and accounting firms. Democrats have pointed to Kohlberg Kravis Roberts & Co. and PricewaterhouseCoopers as examples of firms organized as small businesses that don't fit the mom-and-pop stereotype. KKR and PwC declined to comment.

"We're talking about business income here. Why not have the large pass-throughs ... pay a corporate rate?" Sen. Max Baucus (D., Mont.), the Senate Finance Committee chairman, asked at a hearing on Tuesday.

In response, small-business representatives are raising alarms in meetings with lawmakers, seeking to block changes they fear might shift the cost of a corporate tax overhaul onto them.

The S Corporation Association, a trade group, commissioned a study warning that even the most basic corporate-tax overhaul would raise taxes for small businesses substantially, simply because they would lose business deductions but wouldn't receive the rate cut.

Bill Rys, tax counsel for the National Federation of Independent Business, which represents small businesses, said the administration intends to raise taxes on business owners already, through letting the Bush-era tax cuts expire for higher-income earners. An administration proposal to increase taxes paid by large pass-throughs would be another blow, he said.

"This really stacks the deck against pass-through businesses," Mr. Rys said.

Republican lawmakers as well as some Democrats have raised concerns about the idea. The House Ways and Means Committee has held hearings to explore the impact of a corporate tax overhaul on small businesses.

Rep. Pat Tiberi (R., Ohio), the chairman of the Ways and Means tax subcommittee, said in an interview that the idea of raising taxes on large pass-throughs might be appealing politically. "But in terms of sound tax policy, I think we should recognize it for what it is—it's double taxation, and it's about a revenue grab more than anything else," he said.

A senior administration officials said any plan would be "very attentive" to the interests of small businesses. "We want to make sure the net effect would be a tax cut for small businesses," not an increase to pay for tax cuts for large businesses.

The skirmishing points to the struggles that lie ahead as Mr. Obama and lawmakers try to re-balance an ossified tax system that hasn't been revamped comprehensively since 1986. In fact, the debate over pass-throughs is one reason Sen. Baucus and House Ways and Means

Chairman Dave Camp (R., Mich.) have both made it clear they would prefer to revamp the corporate tax code as part of a broader overhaul of the individual tax code, a process that could take several years.

The Obama administration appears to be hoping the problems aren't quite so knotty. It is betting that a lower corporate rate will answer objections thrown up by those who come out losers, or at least drown them out.

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