Suggested Discussion Outline

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Suggested Discussion Outline

Post by johnkarls »


A. “The Best Government Money Can Buy: Bribery and Extortion”

A-1. Our 2/14/2008 meeting focused on:
A-1-a. “Homo Politicus” by Dana Milbank, Washington Post Columnist
A-1-b. “The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity” by Robert Kuttner, 20-year columnist for Business Week followed by 22 years as co-founder & co-editor of The American Prospect (“an authoritative magazine of liberal ideas”)

A-2. The theme of both books was that nothing is done in the cesspool that is Washington DC except as the result of a “bribe” (aka “campaign contribution”)

A-3. Kuttner made the additional point that “campaign contributions” are often the result of “extortion” by (rather than a “bribe” of) the candidate
A-3-a. Exhibit A cited by Kuttner was Candidate Obama’s 2008 “shake-down” of hedge-fund managers under the threat that he would eliminate their special 15% tax rate for their fees

B. Are Our Authors Naïve Or Are They Naïve???

B-1. On pp. 177-8, they perpetuate the myth that “campaign contributions” are merely payments for “access” to decision makers rather than payments for the final governmental actions that are required

B-2. Ditto, p. 273

C. Pervasive Demagoguery = Deserved Insult to the American Electorate

C-1. Exhibit A from the current Obama campaign =
C-1-a. President Obama rails against the top 1% of America’s income earners and the top 35% income-tax rate – saying that the 35% rate should be raised back to 39.6% prevailing before the “Bush tax cuts”
C-1-b. Of course, he doesn’t bother to mention the 15% capital gains rate paid by hedge fund managers from whom he has extorted, per Kuttner, “campaign contributions”

C-2. Exhibit B from the current Romney campaign =
C-2-a. Candidate Romney, to stimulate the economy, talks about permitting US-based Multi-National Companies to “bring home” tax-free (vs. the regular 35% regular corporate rate) the $3-4 TRillion of liquid assets accumulated in tax-haven subsidiaries
C-2-b. As we studied for our 5/11/2011 meeting, such “liquid assets” are the accumulated profits from exporting American jobs and they are already “home” because the US-based MNC’s that exported American jobs were forced, in order to avoid the 35% tax, to loan the money to the CHUMP AMERICAN COMPANIES THAT DID NOT EXPORT AMERICAN JOBS
C-2-c. As we also studied for our 5/11/2011 meeting, the 2004 American Jobs Creation (sic) Act permitted such dividends on a one-time basis at a 5.25% rate, causing $4-5 TRillion that had accumulated as of that time to be dividended -- forcing the CHUMP American companies that had not exported American jobs to reduce their payrolls and capital expenditures by $4-5 TRillion in order to repay their loans from the tax-haven subs of the MNC’s that had exported American jobs -- COMPRISING THE REAL CAUSE OF THE 2007-2008 ECONOMIC MELTDOWN

C-3. NB: Despite our 5/11/2011 Six-Degrees-Of-Separation E-mail Campaign to President Obama asking him to foreswear doing the same thing (which had been recommended by his bi-partisan Deficit Reduction Commission), he has not done so

C-4. Accordingly, it would appear that we are headed for another economic meltdown on the order of 2007-2008 no matter which candidate wins!!!

D. The Common-Sense Solutions to America’s Economic Woes

D-1. Vis-à-vis the “middle class” and loss of American jobs, please see the Q&A’s.

D-2. Vis-à-vis America’s “Permanent Under-Caste” -- the 30% of the American population that the U.S. government has consistently reported for 50 years are illiterate as defined by the ability to read the warning label on a can of rat poison – please see Sections 3 & 4 of this Bulletin Board regarding “Inner-City Holocaust and America’s Apartheid ‘Justice’ System (In Honor Of Jonathan Kozol and In Memory Of John Howard Griffin)”
D-2-a. Because of the obvious hostility to the plight of inner-city children on the part of the 21 National and California politicians starting with President Obama, the 42 news-media super-stars starting with Gwen Ifill, the California judges and the U.S. Supreme Court justices, the solution to this problem will comprise a long, hard slog as an appeal is made to the consciences of America’s next generation as they are educated
D-2-b. Nobody should think for a moment that these needs will be met under current political conditions because –
D-2-b-i. There are no “campaign contributions” that can be extorted in the process of enacting legislation to help inner-city children escape through a decent and effective education the vicious cycle of the “permanent under-caste”
D-2-b-ii. After all, the only reason why Obamacare (a term President Obama has embraced) was enacted is that it gave the Democrats in Congress a feeding frenzy as they extorted “campaign contributions” from the insurance industry
D-2-b-iii. And if you are a cynic, the Republican promise to “repeal and replace” Obamacare is nothing more than an opportunity for Republicans in Congress to extort “campaign contributions” all over again from the insurance industry

E. Food For Thought

E-1. Why did the Democratic Party cede the “Religious Right” to the Republican Party???

E-2. After all, Christ commanded – “Sell what you have and give it to the poor, and come and follow me.”

E-3. It would make much more sense from the viewpoint of economic policy (vs. social issues), for the “Religious Right” to be part of the Democratic Party

E-4. Indeed, this will probably be the last election that a majority of the Latino vote will be cast for the Democratic Presidential Candidate, since Latinos tend to take their religion (Catholicism) very seriously and, of course, the “common wisdom” is that many of them came to America to secure upward mobility for their children

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No Bribes/Extortion Available Vis-a-vis Inner-City Education

Post by Pat »

Three points from the discussion at our meeting are worth preserving =

First, Alinsky-disciples Barack Obama and Hillary Clinton could hardly be expected to champion the American permanent under-caste unless there are "campaign contributions" available from doing so!!!

Second, this helps to explain why both tackled universal healthcare (Hillary Clinton during her husband's administration and Barack Obama at the beginning of his Presidency) since "campaign contributions" can be extorted from the insurance industry!!!

Third, it also helps to explain why neither has done anything to help inner-city children escape the the permanent under-caste with effective education because where would any "campaign contributions" come from???

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Are Hollywood Movie Stars Taxed At Capital Gains Rates?

Post by solutions »

Much has been made about how hedge-fund managers are taxed at the 15% capital-gains rate on their management fees.

The same question could be asked about Hollywood movie stars!!!

And whether their well-known financial support for President Obama is motivated by idealism. Or by crass self-interest in preserving their apparent 15% capital gains rate on what they earn for making movies.

Unfortunately, a brief digression is necessary to understand the tax treatment.

The news media often refers to the capital-gains treatment of hedge-fund-management fees as a “carried interest” which does nothing to help the public understand the theory involved.

A “carried interest” is much older than the U.S. income tax which did not come into existence until the 16th Amendment to the U.S. Constitution was adopted in 1913.

The “ancient” history of the “carried interest” comes from the oil industry and relates to partnerships.

Most people think of a partnership in terms of, say, two people each of whom puts up 50% of the capital required, each of whom does 50% of the work, and each of whom is allocated 50% of the partnership’s income.

However many, if not most, partnerships (both in the “oil patch” and elsewhere) involve capital contributions that are not proportional to the profits allocation and/or work that is not proportional to the profits allocation.

The classic “carried interest” is nothing more than a partnership where the “carried” partner puts up none of the capital but contributes work.

A typical example outside the “oil patch” would be a farmer or rancher whose daughter marries a hired hand. Quite often the farmer or rancher will “take on” the new son-in-law as a partner. The son-in-law has no capital to contribute so, initially, the father-in-law has a 100% capital interest, but the agreement might be that the profits are split, say, 80% for the father-in-law and 20% for the son-in-law.

The son-in-law has a classic “carried interest.” And at the end of the first year, he will have a capital interest in the partnership (in addition to his profits interest) to the extent that his share of the profits is not distributed to him.

And if the daughter divorces the son-in-law, his partnership interest is a capital asset and he will receive capital-gains treatment on the sale of his partnership interest.


Now we’re ready to tackle the question of whether Hollywood movie stars are in the same tax position as hedge-fund managers.

Just like the son-in-law, the hedge-fund managers contribute work to the enterprise and, unlike the fathers-in-law, the investors contribute no work (though, of course, like the fathers-in-law, they have contributed 100% of the initial capital).

And just like the son-in-law, the hedge-fund managers have to sell a piece of their interest in the partnership’s capital (representing partnership "goodwill" plus their undistributed share of the partnership’s income for managing the fund) in order to achieve capital-gains treatment.


In “ancient” history, movie stars were paid a flat fee for making movies.

But long ago, the stars began demanding a share of the income.

And very quickly, they began demanding a share of the gross revenue, because of the old Hollywood joke that there has never been a movie that made any money. Because, of course, if a star was stupid enough to agree to a share of the net profits, the studio’s accountants would allocate all of the studio’s expenses (including the proverbial “kitchen sink”) to that movie.

Now take a look at several of your favorite movie stars on and you will see that virtually all of them have a half-dozen movies pending, some in “pre-production” and occasionally one in “filming” and/or “post-production.”

Now ask yourself whether it would not be the height of incompetence for any tax adviser worth her/his salt to fail to structure the arrangements so that the movie star’s financial interest in each movie is a “carried interest”!!! With the “pre-production” phase providing the one-year aging required for the 15% rate which only applies to “long term” capital gains (that is, gains on capital assets held for more than one year).

Hint = of course!!!

Though quite a few movie stars do have well-known liberal political views in addition to their self-interest in paying only the 15% capital-gains rate on what they earn from making movies!!!

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