Relevant and even prescient commentary on news, politics and the economy.

Sore-Losing Doesn’t Bode Well for Well-Considered Policy Choices on Taxes…

by Linda Beale

Sore-Losing Doesn’t Bode Well for Well-Considered Policy Choices on Taxes…

Romney and Ryan have apparently joined the GOP sore-losers ranks most ably demonstrated by John McCain’s bitter post-presidential candidate spin.  Romney betrayed the GOP’s disregard for ordinary Americans in a post-election talk with some of his major donors.

Like his “47% comment” in which he disparaged those who don’t have to pay income tax (but generally pay payroll and other taxes) by asserting that they aren’t personally responsible and enjoying being dependents, Romney’s comment about the reasons he lost essentially blames the voters for taking bribes from the sitting president.   He suggested that Obama appealed to specific interest groups “the African American community, the Hispanic community and young people” with generous “gifts” like health-care reform, amnesty for children of illegal immigrants. See  Maeve Reston, Romney attributes loss to ‘gifts’ Obama gave minorities, (Nov. 15, 2012).

Young voters, Romney said, were motivated by the administration’s plan for partial forgiveness of college loan interest, the extension of health coverage for students up to age 26 on their parents’ insurance plans and free contraception coverage under Obama’s healthcare plan, which he credited with ushering greater numbers of college-age women into Obama’s coalition.
The extended insurance coverage, in particular, was “a big gift to young people,” he said, noting that they turned out as a “larger share in this election even than in 2008.”  Id.

Similar language was used to describe the reasons African Americans and Latinos voted in large numbers for Obama.

Such willingness to attribute defeat to political bribery goes a long way in demonstrating how out of touch the GOP is with what government should be doing.  There is some obligation for politicians to serve the people–thinking in the long term and not just for the short term, but considering what kinds of programs merit consideration because of the good they do for individuals and in turn for society. Romney’s deafness to this issue–and his view that taking care of the wealthy few is the only goal of tax policy (and probably spending policy as well)–justly helped in his defeat.  It is terribly important that federal officials recognize the staggering inequality now existing and growing in this country and its impact on all of our lives and the sustainability of the economy as well as the future of our democratic institutions. Romney didn’t get it.  Obama got it imperfectly.  Given a choice, a majority recognized the difference.

It is now time for the GOP to take off its blinders and get a better sense of how their economic policies and in particular their tax policies have been harmful to ordinary Americans and hence to the economy.

cross posted with ataxingmatter

One Nation, Divisible

We are a country not just divided, but fragmented along axes of race, age, religion, economic status and geography.  There are now 15 States where citizens have filed petitions to secede from the Union.  “These include Louisiana (which led the charge), the Republic of Texas, Kentucky, Colorado, New Jersey, Montana, North Dakota, Indiana, Mississippi, North Carolina, Alabama, Florida, Georgia and Oregon.”  I don’t know which is number 15, but I’m gong to guess Oklahoma. 

I’m not going to get flip about it.  While these petitions have virtually no chance of achieving anything, it’s important to remember two things:

1)  You never hear anything like this when Republicans win.
2)  All but 4 of these states represent the (since 1965) solid Republican South.

Another geographic dimension is urban vs rural.  When I do get flip, I say Obama won everywhere that people outnumber cattle, deer, goats or alligators.  This comes distressingly close to being the truth.  Look at the electoral map of just about any State.  I like to consider Ohio, since it is my home State and in many ways represents the U.S. in miniature.  But pick a State at random [or Texas in particular] and you’ll probably see the same scenario.   The Ohio electoral map shows that Obama carried 16 of Ohio’s 88 counties.  Half of these are strung along the Lake Erie shore, four more are contiguous in the densely populated north-east corner, and the other four contain Columbus, Dayton, Cincinnati and Athens.

I’m not ambitious enough to undertake the study, but I’ll hypothesize that Obama’s vote percentage in each county is directly proportional to the total population – and this in a State where the counties don’t vary much in physical size.  Consider that Lucas Co. [essentially my home town, Toledo] with 198,000 votes cast went for Obama by 64 to 34%, while Mercer Co. along the IN border with 21,000 votes cast went for Romney by 77 to 22%.  You can find these kinds of results all over the country.

Another divide is along education level.  Among the 15 States with the best public school systems, Obama carried 13, while among the 15 States with the worst public school systems, Romney carried 12.  I see this as a big component in the recent Republican war on education.  One thing you develop as a result of good education is a set of critical thinking skills, which then give you the ability to see through nonsense peddlers like Rush, Trump, and the whole Fox roster.

All of this tends to make me pessimistic about our nations future.  But I see rays of hope amidst the great divide.  Even in Georgia, which went 53 to 45% for Romney, you find Obama winning by huge margins in Atlanta, Macon, Augusta, Columbus, Savannah, and Albany.

Plus, another thing is happening that you have to see a country-wide county level electoral map to notice.

There is a blue streak that starts along the Mississippi river valley where Arkansas, Louisiana and Mississippi converge and runs almost continuously through Alabama, Georgia and the Carolinas to join with the blue States along the coast.

I call it the band of sanity running through the South, and it might just represent an opportunity for progressives to build on going forward.

Obama, Romney & Enthusiasm

by Mike Kimel

Obama, Romney & Enthusiasm

We live in lesser times. The election is coming up, and our choices for President are pretty dismal. I mean really, Barack Obama or Mitt Romney? This is what it comes down to? And the third party candidates, when one scratches below the surface, are not any better. An honest person must admit ample reasons to oppose everyone on the ballot.

With that said, there is one phenomenon about this election I find very curious. Until Barack Obama came around, the only Presidents since the end of WW2 to increase the national debt as a percentage of GDP have been Gerald Ford, Ronald Reagan, and the two Bushes. So why is it that so many people who oppose Obama, who look to Reagan as a shining light, are yelling about financial responsibility and deficits? They weren’t supporting Democrats since 1976, that is for sure, and it wasn’t that long ago that Dick Cheney told us boldly that that deficits don’t matter.

I also don’t get the economic concerns that Republicans have about Obama. With the exception of Obamacare, essentially the same thing as Romneycare and very much based on a Heritage Foundation plan, Obama’s economic plan has been to continue GW’s policies. Tax rates have been kept constant, right where GW left them. The bailout was kept the same. What exactly did he change?

Which leads to the same question for Democrats too: what exactly did Obama change? From where I’m standing, on the economic front, all I can point to is that Obama has, if anything, done less to rein in financial abuses than his predecessor did.

After the dot com implosion, there were prosecutions. After the much bigger mess from
2007 to 2009, crickets. Similarly, when the dot com implosions were played out, none of the perpetrators were given handouts. After the 2007 meltdown, not only did Obama continue GW’s bailout giveaways, he expanded them and has encouraged the Fed to do the same. If there’s one class of Americans who are doing particularly well, its the folks who were most complicit in creating the mess the rest of the country is in.

I can say about the same thing with respect to social policies, foreign affairs, etc. All of which is to say, there are a lot of people out demonizing one of the candidates, a candidate who is following their party’s prescription as well as any of their own party’s standard bearers, simply because he belongs to the other party. And there are a lot of people supporting that candidate, that candidate who in deeds stands against what they stand for, simply because he is, nominally a member of their party. The reason we live in lesser times is because, collectively, we are lesser people.

The other day I held my nose, scratched off a mark next to the name of the marginally lesser of the two evils (I originally planned to have a blank vote for President, but the other evil worries me more than I expected), and mailed in my absentee ballot. I won’t advise you on whom to vote, but I would, strongly suggest that you not kid yourself. If, like me, you are holding your nose, don’t pretend you are doing it with a lot of enthusiasm. The stakes surrounding this election are far smaller than the stakes surrounding how we, the people, behave when it comes to politics.

Romney shows he’s a "know-it-all" who has no real ideas at all

(Dan here… This one is still relevant.  I let it hang in drafts by mistake.)

by Linda Beale

Romney shows he’s a “know-it-all” who has no real ideas at all.

I missed almost all of the first debate but watched most of this second one.  My quick sum-up of the action was the Obama was straightforward, prepared, and much more energetic than in the first debate.  While I don’t think he has been a great president, he has nonetheless acted on a number of matters in ways that move us away from the disastrous policies of the Bush years–fairer immigration actions, more interest in the middle class and jobs, wise action to save the auto industry when Romney would have allowed one of the midwest’s major industries to rot on the vine, attempting to move the corporate tax debate away from giveaways for the multinationals and towards more reasonable tax policies, movement on health care reform (though still not towards the single-payer option that we must eventually embrace), movement on financial institution reform through Dodd-Frank (though still not sufficient control of the financialization of the economy).

Romney, quite frankly, came across as an arrogant shell who doesn’t have any substance underneath the expensive coif of hair and Armani suit.  He constantly blames Obama for the Great Recession that stemmed directly from the failed Bush economic policies favored by the Republican party’s right wing, the same policies that Romney and Ryan want to re-install if they take over the White House.  He consistently fails to acknowledge that the deficits under Obama were temporary ones caused by the trillions of dollars of unnecessary Bush individual and corporate tax cuts, the Bush preemptive wars, the class warfare of tax policies that favor the 1%, privatization of education and the militaryh, and the financialization of the economy egged on under Bush by the right’s misguided views of “free” trade (meaning business can run over the workers and the environment at will and pay less taxes even while causing more societal harm).  Romney (as Obama noted in the debate tonight) goes George W. Bush even further–he would ruin Medicare by turning it into “voucher-care” that was insufficient to meet vulnerable seniors’ needs, and he would destroy Social Security by privatizing it so that seniors are at the whim of the stock market and Wall Street traders for their very livelihood.

Yet this guy born with a silver spoon in his mouth and with a family of connections to power really thinks that he got where he is on his own!  What a laugh.  And then he thinks that he can bamboozle the American people by saying “I know how to do that” about creating jobs, getting rid of the deficit, creating growth, solving immigration, making us “energy dependent in 8 or 5 years” and everything else he can promise us.  But he doesn’t think he has to bother to tell us anything about how he will do that.  Often when asked specific questions, he fell back on his “The last four years with Obama have been awful and I feel your pain” absurdity,  

His claim of empathy with the ordinary folks asking questions in the audience was absurd because one only has to harken back to that tape of his disdain for the 47%–and his arrogant view that anyone in that group was dependent on government and unwilling to take personal responsibility for themselves–to know that he doesn’t really give a damn about ordinary folk like those in the audience tonight.  He’d follow that with another claim that he would fix everything because “I know how to do that”, yet in every instance there was nary a specific word about  exactly what he would do. 

One thing is for sure–Romney’s view that cutting tax rates across the board by 20% will jump-start the economy is “nonsense”, as even conservative GOP economist Bruce Bartlett acknowledges.  See Bruce Bartlett, Romney’s Tax Plan and Economic Growth, Economix Blog, New York Times (Oct. 16, 2012) (statng that “the idea that tax reform will jump-start an economy suffering from the after-effects of a cyclical downturn is nonsense” and concluding that “even if Mr. Romney’s plan is enacted as proposed the growth effect will be small to nonexistent”).

On taxes, Romney now claims that he will not cut the amount of taxes paid by the top 5% but will give everybody else a tax cut.  Note that isn’t the same that he has said for months on end, when he made clear that everybody would get the same 20% rate reduction (which would give the wealthy a huge dollar cut, and the middle class a piddling cut) and mocked Obama for wanting to hold the upper-crust more accountable for helping reduce the deficit.  He claims he’ll not increase the deficit, even though he wants to cut taxes and eliminate the estate tax and increase military spending.  He won’t say what deductions he’ll cut or what protections for the poor he’ll keep. 

He claims the numbers add up but won’t tell us what the numbers are.   I think it’s perfectly clear:  he won’t say how he can do that in a revenue-neutral way because it can’t be done.  The New York Times editorial yesterday chimed into the growing list of reputable organizations asserting that his numbers simply don’t add up, noting “the many deceptions in the campaign’s blue-sky promises of low taxes and instant growth.”  See Editorial, Mitt Romney Needs a Working Calculator, New York Times (Oct. 15, 2012).

[The Joint Committee on Taxation] asked its staff what would happen if Congress repealed the biggest tax deductions and loopholes and used the new revenue to lower tax rates. The staff started adding it up: end all itemized deductions, tax capital gains and dividends as ordinary income, and tax the interest on state and local bonds, along with several other revenue-raisers.
The answer came last week: ending all those deductions would only produce enough revenue to lower tax rates by 4 percent.
Mitt Romney says he can lower tax rates by 20 percent and pay for it by ending deductions. The joint committee’s math makes it clear that that is impossible. Id.

Note that Romney doesn’t intend to tax dividends and capital gains at the same ordinary income rate that us ordinary folks pay on our compensation income, so he wouldn’t even get to a 4% reduction in rates with his version of tax “simplification.”  He wants to keep allowing people like him to get a tax-advantaged “preferential rate” on carried interest that they get as their compensation in vulture capital “private equity” funds that buy up American businesses and load them with debt and offshore their jobs.  He wants to keep taxing capital gains and dividends at the ridiculously low rates achieved by the Bush tax cuts that were a major factor in driving us from surplus to deficit.  He even wants to cut capital gains and dividend and interest tax rates to zero for those making less than $200,000.  (Of course, that group doesn’t have much of that kind of capital income–it is mostly the province of the very rich at the top.  One suspects the rate cut for the upper middle class that would apply to is just a prelude, like most of the Bush-era tax cuts, to a Republican push to eliminate taxes entirely on capital income, which Romney and Ryan have supported in the past.)  He wants to cut taxes for the huge multinational corporations and encourage them to continue moving our jobs offshore.

There is no way that such a tax policy makes sense for America.  It will let the rich get richer, when we are already at a point where the middle class is shrinking because of the way big business has grabbed all the productivity gains for the managers and owners and left ordinary workers hanging out to dry.

Reaganomics–with its push for privatization, tax cuts, militarization, and deregulation–stabbed at the heart of the US economy.  The Bush tax cuts drove us from surplus to deficit in one fell swoop and set the stage for the Republican obstructionist games that have gone on during the four years of the Obama administration, in which the radical right GOP has cared more about pushing for extremist policies beneficial to the wealthy and the big corporations they run rather than considering what is good for the country.  Romneyomics would be even worse–right-wing market fundamentalism at its most extreme, with the rich making off like bandits and the rest of us left to scramble for crumbs. Surely the American folk aren’t going to buy this idea of rehashing the very ideas that got us into the Great Recession mess from the guy who says “I know how to run the country because I got rich as a vulture capitalist”.

cross posted with ataxingmatter

Romney’s CRUT Tax Shelter

by Linda Beale

Romney’s CRUT Tax Shelter\

The Bloomberg press has looked further at Romney’s use of trusts and other arrangements to avoid taxes, using Freedom of Information Act requests to obtain more information than was released by Romney in his meager tax return release. Romney established a charitable trust in 1996 of a type that Congress cracked down on in 1997 (regrettably, a crackdown that grandfathered existing arrangements, which is the way so many rich people get to keep using abusive shelters). See Jesse Drucker, Romney Avoids Taxeds via Loophole Cutting Mormon Donations, (Oct. 29, 2012).

So what did Romney do.  He used a “charitable remainder unitrust” (CRUT) in a way that alllowed him to use the tax-exempt status of the Mormon Church (his primary charitable beneficiary) to defer taxes for more than 15 years.  The trust benefits Romney considerably, by letting him benefit from the tax-free treatment that the charitable beneficiary has when they sell assets for a profit.and leaves the church less than current law requires for a trust.   And it favors Romney over the church, because he gets a guaranteed payout from the trust (which converted most of its assets to cash in 2007) and the church only gets what’s left at the end, if anything.  Current trends suggest there won’t be anything left for the charity at the end.

“The main benefit from a charitable remainder trust is the renting from your favorite charity of its exemption from taxation,” [Jonathan] Blattmachr [, a trusts and estates lawyer] said. Despite the name, giving a gift or getting a charitable deduction “is just a throwaway,” he said. “I used to structure them so the value dedicated to charity was as close to zero as possible without being zero.”

When individuals fund a charitable remainder unitrust, or “CRUT,” they defer capital gains taxes on any profit from the sale of the assets, and receive a small upfront charitable deduction and a stream of yearly cash payments. Like an individual retirement account, the trust allows money to grow tax deferred, while like an annuity it also pays Romney a steady income. After the funder’s death, the trust’s remaining assets go to a designated charity.

Romney’s CRUT, which is only a small part of the $250 million that Romney’s campaign cites as his net worth, has been paying him 8 percent of its assets each year. As the Romneys have received these payments, the money that will potentially be left for charity has declined from at least $750,000 in 2001 to $421,203 at the end of 2011. Id.

Under the 1997 change to the law, Congress required that the present value projected to be left for charity must equal at least 10% of the initial contribution. Romney’s CRUT doesn’t satisfy this requirement but was grandfathered in.  The principal of the CRUT has dwindled to about half what it was.  In the meantime, the Romney’s have enjoyed considerable tax savings due to the way the CRUT works.

This information is revealing for two reasons.  First, it demonstrates yet again that the Romney’s are eager to use whatever mechanisms they can to reduce taxes, even though their millions are due in no small part to the way taxpayers make business possible (from courts to roads to police to the military to “rule of law” to relatively low funding costs for borrowing in the United States, etc.).   One suspects that the reason Romney has stonewalled the public on his tax returns is that there is lots more of this nature shown therein, including possibly his participation in voluntary disclosure regarding offshore accounts (that otherwise might have resulted in criminal tax evasion charges).

Second, it shows that Congress recognized that CRUTs didn’t make sense.  So we have to ask why Congress didn’t eliminate CRUTs altogether, rather than continuing to allow the gambit, and why, if it were going to continue to allow the gambit, it didn’t terminate the favorable treatment of any existing CRUT that didn’t satisfy the minimal funding requirement the new law included (10% of the original contribution has to go to charity before the donor can enjoy the immense benefit of the capital gains deferral thereby).   Congress should allow the estate tax to lapse back to the pre-Bush levels, and it should then buttress the estate tax by legislating the end to the many different devices used by estate lawyers to get around the tax while still providing most of the benefits of the assets to the estate planners–CRUTs and similar estate-planning trusts are prime targets for action by Congress.

cross posted with ataxingmatter

Mainstream and Semi-Mainstream Allegations Against Sitting Presidents

by Mike Kimel

Mainstream and Semi-Mainstream Allegations Against Sitting Presidents

I think back to each of the Presidents who was in office since Reagan,
under whom I was old enough to start paying attention. And I was
thinking of the allegations that were made against each by their
political enemies. I’m going to ignore the real fringe stuff, stuff
you might hear only from, say, the Neo-Nazis on one side or those who
call themselves communists on the other. Call this a list of things
regularly believed by tens of millions of people, regularly stated by
individuals commanding an audience of tens of millions of people, or
regularly stated by political press that commands respect by members
of one of the two political parties.

Its four AM and I am working from memory, so maybe I’m missing
something but here’s the basic worst allegations list:

Allegations against Reagan: October surprise, senile,
prone to making up stories, appointed corrupt officials, support for
dictators in Latin America, illegal wars in Central America, selling
arms to Iran

Allegations against George HW Bush: Involved in Iran
Contra, involved in war crimes while head of the CIA, Zapata Oil was a
CIA front, ties to Noriega while head of the CIA

Allegations against Bill Clinton: a drug dealer,
personally shot several individuals in the Mena airport, ordered the
execution of many of his cronies (Vince Foster et. al.), black
helicopters and UN bases bases on US soil, appointed corrupt
officials, taking away everyone’s guns, multiple affairs and several
rapes, sold military secrets to China, will cancel the elections in
the year 2000

Allegations against George Bush: Used National Guard to
avoid service in Vietnam, used his father’s influence to avoid
National Guard duties, close ties to the Saudi Royal family, did not
really win the election in 2000, ties to Ken Lay, hired known
criminals into his cabinet, knew that Iraq did not have WMDs, will
cancel elections in the year 2008

We’re in the middle of a contentious election, and too close to things
right now for me to list allegations against Obama, so I’ll end my
short list right there. Feel free to expand it in comments, but
please avoid fringe allegations. And one more thing – I think its
worth asking: what do you notice about this list?

Polling Obsession

The 2012 Presidential is so close just so close that not only do different polls show different results but different averages of polls do.

OK it is clear that extremely fancy models such as the fivethirtyeight model which attempt to assign undecideds and use state data to estimate the national vote and vice versa are different (generally I don’t like fancy but Nate Silver has a track record).  But simple smoothers also give different results.

Partly it is the choice of polls to include yes/no on web based or partisan polls. is a simple average but they don’t include partisan polls or web based polls (and use self reported partisanship so Rasmussen is included but not PPP ooops).

But part of it is the smoothing algorithm.  both and use loess smoothers which fit a constant and a coefficient on time using weights which decline away from time t and report the fitted value for t.  I think this means they are too quick to extrapolate trends.  This means that one outlier can convince the computer that the polls have been trending for a candidate.

My example the odd case of TalkingPointsMemo and Michigan.  The program has Ohio leans Obama and Michigan a tossup.  This is due to one poll by Foster-McCallum (in serious contention for the bitterly fought prize for worst pollster).  Without them, the computer estimates that Obama is 3.9% ahead.  That is enough for TPM to call the state leans Obama and give more than 269 electoral votes in Obama leaning states.

Here is the graph with Foster-McCallum

Here is the graph without them

This is extreme, because Foster/McCallum had a Florida poll with an absurd sample which earned the coveted and very rare double asterix from TPM for not included in the average because of an editorial decision.

I think such decisions should be made pollster by pollster not poll by poll.  But totally aside from that a sensible smoothing algorithm shouldn’t be so sensitive to one poll when 10 October polls are available all of which polled after the first TV debate.

Notice how the poll pulls down estimates of the state of the race before it’s sample began.  This feature of the smoother makes it hard to see if a shift is due to an event.

I say even simpler is better than Loess.

Mark Thoma presses the issue of increasing income inequality

Mark Thoma  presses the issue of increasing income inequality:

Via an email from Lane Kenworthy, here’s more research contradicting the claim made by Kevin Hassett and Aparna Mathur in the WSJ that consumption inequality has not increased (here’s my response summarizing additional work contradicting their claim, a claim that is really an attempt to blunt the call to use taxation to address the growing inequality problem):

Inequality of Income and Consumption: Measuring the Trends in Inequality from 1985-2010 for the Same Individuals, by Jonathan Fisher, David S. Johnson, and Timothy M. Smeeding: I. Introduction: Income and Consumption The 2012 Economic Report of the President stated: “The confluence of rising inequality and low economic mobility over the past three decades poses a real threat to the United States as a land of opportunity.” This view was also repeated in a speech by Council of Economics Advisors Chairman, Alan Krueger (2012). President Obama suggested that inequality was “…the defining issue of our time…” As suggested by Isabel Sawhill (2012), 2011 was the year of inequality.

Recent research shows that income inequality has increased over the past three decades (Burkhauser, et al. (2012), Smeeding and Thompson (2011), CBO (2011), Atkinson, Piketty and Saez (2011)). And most research suggests that this increase is mainly due to the larger increase in income at the very top of the distribution (see CBO (2011) and Saez (2012)). Researchers, however, dispute the extent of the increase. The extent of the increase depends on the resource measure used (income or consumption), the definition of the resource measure (e.g., market income or after-tax income), and the population of interest.

This paper examines the distribution of income and consumption in the US using data that obtains measures of both income and consumption from the same set of individuals and this paper develops a set of inequality measures that show the increase in inequality during the past 25 years using the 1984-2010 Consumer Expenditure (CE) Survey.
The dispute over whether income or consumption should be preferred as a measure of economic well-being is discussed in the National Academy of Sciences (NAS) report on poverty measurement (Citro and Michael (1995), p. 36). The NAS report argues:

Conceptually, an income definition is more appropriate to the view that what matters is a family’s ability to attain a living standard above the poverty level by means of its own resources…. In contrast to an income definition, an expenditure (or consumption) definition is more appropriate to the view that what matters is someone’s actual standard of living, regardless of how it is attained. In practice the availability of high-quality data is often a prime determinant of whether an incomeor expenditure-based family resource definition is used.

Romney, Family Business, Carried Interest, and potential conflicts of interest

by Linda Beale

Romney, Family Business, Carried Interest, and potential conflicts of interest

Just a quick note this morning on an interesting article in the October 29, 2012 edition of The Nation magazine, Lee Fang, Romney Family Business: Investors in Tagg Romney’s firm, Solamere Capital, could hit the jackpot if his father wins, The Nation (Oct. 29, 2012), at 18.

Marc Leder, the wealthy investor who hosted the Romney fundraiser last May in Boca Raton where Romney made his comment disparaging almost half of Americans as personally irresponsible and happy to depend on government, is just one of several high-powered investors linked to the Romney family business empire.  The Nation article describes it this way.

In 2008, … [Romney’s] eldest son Tagg and his chief fundraiser Spencer Zwick formed Solamere Capital, a private equity firm …. What Tagg lacked in experience in the world of high finance, he made up for with a vast network of political connections forged through his father, who seeded the firm with $10 million and was the featured speaker at its first investor conference in January 2010. …
Unlike most private equity firms…, Solamere specializes in something else:  billing itself as a ‘fund of funds’ with ‘unparalleled networks’, it provides investors with ‘unique access’ to an elite set of other private equity firms and hedge funds.

Solamere, a firm predicated on its founders’ relationship with Romney, presents a channel for powerful investors to influence the White House if he wins.

The looming matters range from general matters that affect all private equity firms–such as tax changes or the new rules mandated by the Dodd-Frank financial reform bill–to more specific concerns relating to businesses owned or controlled by Solamere’s partner firms.   Many of these businesses, in fact, depend on government contracts; indeed, some have been accused of fleecing taxpayers…. A Romney administration could directly affect the profitability of these companies–and, by extension, potentially the success of Tagg’s venture….
Take Leder … whose Sun Capital firm bought a stake in the Scooter Store last year.  The company, known for its ubiquitous television ads promising seemingly free motorized wheelchairs for Medicare beneficiaries, has struggled as the Centers for Medicare and Medicaid Services, the federal agency that governs the programs, implements rules to curb rampant billing fraud.  …80 percent of the claims for scooters and power wheelchairs did not meet Medicare requirements, meaning that $492 million a year is being improperly spent.  In 2007, the Scooter Store gave up $13 million in Medicare payments and paid $4 million to settle with the Justice Department over allegations that it had overbiled for its electric wheelchairs. … Disclosures … suggest that pressuring the government is the only way [Leder’s] investment in Scooter Store can turn a profit.  Since Leder’s firm invested in the Scooter Store, the company has spent nearly $900,000 on lobbyists to push back on [the] two latest challenges to its motorized-scooter empire.
Records indicate the firm [Solamere Capital] was incorporated at the same Boston office where Romney’s campaign headquarters had been located, and later shared an office address with Romney’s PAC. Zwick … has been referred to as Romney’s ‘sixth son.’  And by all accounts, he’s one of the most trusted advisers in Romney’s circle. … [I]n February 2008, Solamer Capital registered with the State of Massachusetts. Zwick and Tagg joined with Eric Scheuermann, a former Jupiter Partners executive, as the three managing partners of the firm.  Scheuermann was the only one with prior experience in private equity. … However, success for the firm seemed preordained. … Solamere surpassed its $200 million fundraising goal with help from an elite set of ‘high net worth’ individuals, many of whom are close Romney allies. … The three managing partners will receive $16.8 million in management fees over the first six years, as well as ‘performance-based incentive’ pay. … A tax return filed by Mitt and Ann Romney, made public in September, showed that Solamere has used an array of Cayman Islands entities … [It] likely uses ‘blocker corporations’ to help its tax-exempt investors avoid paying the unrelated business income tax.
In June, the Romney campaign announced that if he’s elected, the candidate would move his assets into a federally qualified blind trust, and would also likely sell off any assets that ‘are not fully compliant with federal disclosure and other rules applicable to the office of the presidency.’ But if Romney wins, there’s almost no chance that the underlying assets of his son’s firm, Solamere, will be revealed.  Solamere could have assets involved in healthcare, energy, telecommunications or any number of other industries, but the public will be left in the dark.
What is known is that Solamere’s private equity partners are eager to influence the federal government. Three of the firms listed in the Solamere prospectus–Sun Capital Partners, TPG Capital and TA Associates–are currently financing a lobbying campaign under a trade group called the Private Equity Growth Capital Councill (PEGCC), which is seeking to influence a number of tax and regulatory decisions.  The PEGCC has spent nearly $5.8 million on federal lobbying over the past three years, and untold millions this year on a public relations campaign in swing states to improve the image of private equity–a strategy seen as designed to benefit Romney’s campaign. One of the primary concerns of the PEGCC … is that the carried interest loophole, which allows wealthy investment managers to be taxed [on their compensation for services] at only the 15 percent capital gains rate, may be closed. The group has also …held meetings with regulators to complain about the Dodd-Frank financial reform bill’s mandates.
Other Solamere investment partners own businesses that face imminent regulatory action [including SCF partners, Rockwater Energy Solutions, and IPS Canada].
Meanwhile, HIG Capital–one of the largest Solamere partners, with nearly $10 billion of equity capital–owns a number of other firms that are closely monitoring the federal government.  One area where private equity firms have made lucrative investments is the new industry of dental management companies that bill Medicaid.  In November 2011, Senators Chuck Grassley of Iowa and Max Baucus of Montana opened an investigation in response to allegations that these corporate-controlled dentists have abused children.
The Medicaid reimbursements for the dental management companies offer a revealing look at the underlying business model being pursued by the Romney-supporting private equity firms:  big government, when harnessed to industry-friendly regulators, can mean big profits. Many of these private equity-owned companies rely on federal and state contracts, from HIG Capital’s Hart Intercivic, a voting machine company, to EnviroFoam Technologies, a biological and chemical decontamination firm that does business with the US military and is owned by Peterson Partners, a private equity firm listed in the Solamere prospectus.
Asked about the rising cost of colleges …, Romney said that students should take a look at for-profit colleges like Full Sail Uniersity …. Weeks later… Romney hailed the ‘advent of for-profit institutions of higher learning’ for providing competition with public and private universities.  He again volunteered Full Sail University as a good example of how students can ‘hold down the cost of their education.’
What Romney neglected to mention is that Full Sail University–in fact the third most expensive college in the United States–is owned by TA Associates.  Indeed, TA Associates has viewed the for-profit college industry–a $40 billion maker where 85 percent of the funds are supplied by taxpayers–as an excellent opportunity for growth. …Like most profit driven colleges, which account for only 10 percent of all students but about half of all loan defaults, TA Associates’ schools do not boast a stellar track record.
‘The fact that Romney praised an overpriced, underperforming college that is owned by his son’s investment partners, and whose owners have contributed a quarter-million dollars to his campaign and Super PAC, shows how he embodies the corrupting influence of money on politics,’ asserts David Halperin …. ‘It shows how his administration could, as a matter of course, allow special interests–the interests of his rich friends–to skew important policy decisions and harm the public interest.’ Id (emphases added).

The article goes on to discuss how closely Solarmere and its investors are intertwined with the Romney campaign.  Tagg is a part of Romney’s inner circle.  Solamere holds an investor conference that happens to coincide with a neighboring fundraising event for the campaign.  American Crossroads, Karl Rove’s Super PAC engine of radical GOP ideas, attends both.  The Super PAC can’t coordinate with campaigns, but the fundraising is hosted by Solamere so that makes it okay, technically.

This excerpt thus amply illustrates the way class warfare really works:  a closely knit group of oligarchs with business ties through their private equity empires and a shared corporatist perspective on society can use insider access to the channels of government power to make government work for them and prevent its working for ordinary folk.

First, money speaks loudly, so legislation tends to get passed that favors the elite or gets blocked when it disfavors their special interests.  Ending the carried interest loophole can’t make it through Congress, even though there is a wealth of commentary condemning it as an inappropriate subsidy for an industry that is often destructive to the economy.  Hampering the EPA’s ability to safeguard wildnerness lands or healthy air and water is easily accomplished.  Insider information, influential networks among oligarchs, and intimate acquaintanceship among executives in government and corporate executives ensures the smooth flow and fit of wishlists and accomplishments.

Second, with their focus steadfastly on their own rentier profits from their vulture businesses, oligarchs refuse to support measures that are important for the commonweal, and urge the passage of measures that have harsh impact on ordinary workers.  Offshoring is praised as a “creative destruction” even though compensating creative innovation seldom offsets the costs of worker loss, community disintegration, and economic decline.  Unions are viewed as hostile opponents (because the more money that goes to workers in respect of their real work acomplished, the less can be skimmed off the top by vulture capitalists), and hence much of big corporate money is targeted to eliminate collective bargaining rights that protect workers.

Note that this is always just one of many blows from private equity’s leveraged buyout methods, since the use of excess leveraging for quick profits to the private equity managers builds up debt that sucks out cashflow and either provides justification for reduced wages to workers from a barely stable industry or provides justification for a bankruptcy process through which the company’s pension obligations to its retired workers can more easily be scrapped (even though it could have met them if it had only treated them as important as its payouts to overpaid managers).

cross posted with ataxingmatter