Posts Tagged news

Grow Private Sector, Not Government


 

Tax policy received scant attention in the presidential debates, but when it did both candidates displayed a serious lack of understanding regarding at least one critical component of the tax code: carried interest. Although arcane in nature and unheard of by most, carried interest is a tax rule that fosters capital formation, encourages investment and ultimately leads to job creation.

Simply put, carried interest is a type of capital gain.  Homeowners are familiar with the term ‘capital gain’ which in that circumstance refers to the increase in value of your home over time as you make improvements or rising market prices increase its sale price.  If you sell your principle residence and make more than $500,000 in profit as a married couple, you must pay a capital gains tax.  You pay the capital gains tax rate, not the ordinary income tax rate, on the transaction because you have already paid taxes on the income used to purchase the house.

Likewise carried interest is a long-term capital gain that is earned by an investment partnership.  In this case the asset is not a house, but an investment portfolio that the partnership established and grew over time. When sold, the portfolio manager pays a lower capital gains tax rate on the fund’s profit, not the higher ordinary income tax rate.

The presidential candidates have, unfortunately, decided to portray carried interest capital gains as a loophole granted to special interests.  Both candidates want to raise this capital gains rate claiming it gives investment fund managers an unfair tax break.  Fairness, however, is not what such an increase would achieve. Rather it would amount to double taxation.

The negative effects would be much worse than over-taxing a sub-set of taxpayers.  The partnerships that are formed when an investor joins with a fund manager results in a structure that fosters informed investments that grow over time.  This growth generates profits.  When the profits are re-invested that is called capital.  Such capital is invested in businesses so that they can grow, expand and create jobs.

Carried interest capital gain rules play a critical role in allowing capital to form.  If you raise the carried interest capital gain tax rate, the government will take more in taxes–dramatically decreasing the amount of capital available for investment in the economy.

A significant portion of that capital available for investment is invested right here in Pennsylvania.  According to the American Investment Council, private equity firms invested an estimated $24.49 billion in Pennsylvania-based companies in 2015.  There are 143 private equity firms headquartered in Pennsylvania.  These companies support more than 185,103 workers at facilities both in Pennsylvania and in other states.

In other words, carried interest capital gains is not a tax device aimed at making Wall Street fund managers richer. Rather, it is appropriate taxation that makes more capital available for investment in the companies that are creating much needed new jobs for Pennsylvanians and elsewhere.

It is common in an election year for candidates to propose new government spending programs in an effort to win votes.  They then go looking for ways to pay for that higher spending. “Reforming” the nation’s complex tax structure is often an effective target.

But, changes can have unintended consequences.  Raising the current 23.8% carried interest rate to 33% as proposed by Donald Trump or almost 50% as suggested by Hillary Clinton would result in only a modest increase in tax revenue flowing into the federal treasury.  And we all know that any move to raise this rate would likely be coupled with other tax hikes on working families and small businesses.

Even if you set aside the unfairness of double taxing investors, raising the carried interest tax rate or eliminating that category of capital gain entirely would have the detrimental effect of reducing capital formation.  That means dramatically fewer dollars available for companies to grow and create new jobs.  Carried interest is not a tax break for the wealthy; rather it is a way for investors to put their earnings to work creating the new jobs needed as the nation struggles to recover from the Great Recession.

Lowman S. Henry is Chairman and CEO of the Lincoln Institute of Public Opinion Research, Inc. and host of the weekly Lincoln Radio Journal. His e-mail address is lhenry@lincolninstitute.org

Permission to reprint is granted provided author and affiliation are cited.

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This Week on American Radio Journal: Sally Pipes Talks ACA Death Spiral on American Radio Journal


Radio Program Schedule for the week of November 5, 2016 – November 11, 2016

This week on Lincoln Radio Journal:

  • David Taylor from the Pennsylvania Manufacturers Association and Matthew Brouillette of the Commonwealth Partners Chamber of Entrepreneurs have a Capitol Watch look at what did and did not get done before the end of the General Assembly session
    Lowman Henry has a Town Hall Commentary on why elements of the tax code foster job creation

This week on American Radio Journal:

  • Lowman Henry talks with Sally Pipes of the Pacific Research Institute about premium hikes under the Affordable Care Act
  • Andy Roth from the Club for Growth has the Real Story on unfinished business awaiting the return of congress
  • Eric Boehm of Reason magazine takes a look at early childhood education programs
  • Col. Frank Ryan, USMC (Ret.) has an American Radio Journal commentary on the Veterans Administration

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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This Week on Lincoln Radio Journal: Chris Nicholas Wraps Up Election 2016


Radio Program Schedule for the week of October 29, 2016 – November 4, 2016

This week on Lincoln Radio Journal:

  • Lowman Henry gets an overview of races on the upcoming General Election ballot from Chris Nicholas of Eagle Consulting
  • Joe Geiger from the First Nonprofit Foundation has Sharon Goldwyn from the American Committee for the Shaare Zedek Medical Center in the Community Benefit Spotlight
  • Beth Anne Mumford of Americans for Prosperity-PA has a Lincoln Radio Journal commentary on skyrocketing rates under Obamacare

This week on American Radio Journal:

  • Lowman Henry talks with Brian Knight from the Mercatus Center at George Mason University about the Supreme Court ruling the Consumer Financial Protection Bureau unconstitutional
  • Andy Roth of the Club for Growth has the Real Story on challenges facing Paul Ryan’s re-election as Speaker of the House
  • Eric Boehm of Reason Magazine gets details of a California ballot referendum to legalize the recreational use of marijuana from Lynn Lyman of the Drug Policy Alliance
  • Dr. Paul Kengor from the Center for Vision & Values at Grove City College has an American Radio Journal commentary on the passing of sixties era radical Tom Hayden

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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This Week on Lincoln Radio Journal: Democratic Attorney General Nominee Josh Shapiro


Radio Program Schedule for the week of October 22, 2016 – October 28, 2016

This week on Lincoln Radio Journal:

  • Matt Brouillette of Commonwealth Partners Chamber of Entrepreneurs and Kevin Shivers from the National Federation of Independent Business have a Capitol Watch round table discussion with Josh Shapiro, the Democratic nominee for Pennsylvania Attorney General
  •  Lowman Henry has a Town Hall Commentary on Pennsylvania’s worsening business climate

This week on American Radio Journal:

  • Lowman Henry talks with Jonathan Williams of the American Legislative Exchange Council (ALEC) about the nation’s growing problem with unfunded public employee pensions
  • Andy Roth of the Club for Growth has the Real Story on dimming chances for the GOP to retain control of the U.S. Senate
  • Eric Boehm of Reason Magazine talks with Lee McGrath from the Institute for Justice about proposed new licensing requirements in New Jersey for swimming pool installers
  • Colin Hanna of Let Freedom Ring, USA has an American Radio Journal commentary on the final weeks of the 2016 Presidential campaign

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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This Week on Lincoln Radio Journal: State Treasurer Nominee Joe Torsella


Radio Program Schedule for the week of October 15, 2016 – October 21, 2016

This week on Lincoln Radio Journal:

  • Lowman Henry has a Newsmaker interview with Joe Torsella the Democratic nominee for Pennsylvania State Treasurer
  •  Eric Montarti and Frank Gamrat have an Allegheny Institute Report on a state Supreme Court ruling over casino revenue to host municipalities
  • Beth Anne Mumford of Americans for Prosperity-PA has a Lincoln Radio Journal commentary on Pennsylvania’s noncompetitive tax structure

This week on American Radio Journal:

  • Lowman Henry talks with Hans von Spakovsky of the Heritage Foundation about how states can protect their election systems
  • Andy Roth of the Club for Growth has the Real Story on how the GOP civil war will affect congressional candidates
  • Eric Boehm of Reason magazine discusses road blocks facing Uber and Lyft with Michael Farren of the Mercatus Center at George Mason University
  • Col. Frank Ryan, USMC (Ret.) has an American Radio Journal commentary on coping with information overload

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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This Week on Lincoln Radio Journal: Attorney General Nominee John Rafferty


Radio Program Schedule for the week of October 8, 2016 – October 14, 2016

This week on Lincoln Radio Journal:

  • David Taylor of the PA Manufacturers Association and Kevin Shivers from the National Federation of Independent Business-PA have a Capitol Watch discussion with State Senator John Rafferty, the Republican nominee for Pennsylvania Attorney General
  • Lowman Henry has a Town Hall Commentary on how to focus more voter interest on statewide “row office” elections

This week on American Radio Journal:

  • Lowman Henry talks with Grover Norquist of the U.S. Justice Action Network about dealing with a spike of violent crime
  • Andy Roth of the Club for Growth has the Real Story on this year’s U.S. Senate races
  • Eric Boehm of Reason Magazine gets details of a U.S. Supreme Court ruling involving the Wisconsin recall election from Matt Kittle of Wisconsin Watchdog
  • Dr. Paul Kengor from the Center for Vision & Values at Grove City College has an American Radio Journal commentary revisiting the Clinton White House years 

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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What’s My Line?


There is an old television game show entitled “What’s My Line?” The game featured celebrity panelists questioning contestants to determine their occupations.  Let’s play a Pennsylvania version of the show: Who are Otto Voit, Joe Torsella, John Brown, John Rafferty and Josh Shapiro?  The answer is they are all currently running for statewide office in Pennsylvania.

Next question: Can you correctly identify the office for which they are running?  The answers are Voit and Torsella are running for state treasurer; Rafferty and Shapiro for attorney general; and John Brown, along with incumbent Eugene DePasquale are running for auditor general.

When it comes to statewide offices in Pennsylvania it is either feast or famine.  This year’s ballot will feature a veritable buffet for voters from President of the United States to U.S. Senate to the already mentioned three statewide constitutional offices. But next year statewide politics goes on a strict diet with only appellate court seats on the menu.

Voters respond accordingly.  Turn-out for the 2012 election topped 58% in Pennsylvania.  The following year, 2013 sported only one statewide race – a seat on the state superior court – and voter turn-out plummeted to less than 17%.  As a side note, that 2013 judicial race was won by Victor Stabile who has the distinction of being the only Republican to win a statewide election in the past four years.

In 2012, President Barack Obama powered a sweep of statewide offices as Democrats were elected state treasurer, auditor general and attorney general. It was the first time since attorney general was made an elected position back in 1980 a Democrat won that office. Four years later, however, former Attorney General Kathleen Kane and former state Treasurer Rob McCord have been convicted of high crimes and await sentencing.  Auditor General DePasquale, it should be noted, has served scandal free.

Corruption in these statewide constitutional or “row” offices is unfortunately not uncommon in Pennsylvania.  Former state Treasurer Barbara Hafer was recently indicted for alleged improprieties dating to her time in office.  Going back a bit further, former Auditor General Al Benedict and former state Treasurer R. Budd Dwyer were convicted of crimes. Benedict admitted his guilt, Budd Dwyer died proclaiming his innocence.

Of course it is impossible to know whether or not a candidate will be honest in advance, but it is clear the currently system has not provided voters with the opportunity to learn enough about the candidates.  While tens of millions will be spent on this year’s U.S. Senate race between Pat Toomey and Katie McGinty, candidates for the row offices will likely be lucky to have a couple of million to present their credentials to voters.

It is unreasonable to expect voters to pay attention to who will be state treasurer, auditor general or attorney general in a year when a presidential campaign dominates the news.  You aren’t going to see Otto Voit and Joe Torsella on the front page of the paper every day – in fact they’ll be lucky to be in the paper at all.  And no television station is going to go live and lead from an appearance by these candidates.  Many voters will go to the polls not even knowing their names, much less with a full understanding of their credentials and plans for the offices they seek.

This will continue to be the case for however long these offices are filled in a presidential election year.  So here is a thought: move the election of these three offices to the year following the presidential election.  In the four year cycle of elections the “off year” following presidential balloting is the lowest profile year.  Only statewide appellate court seats are on the ballot, and – except for home rule counties – there aren’t even county commissioner races to capture voter interest.

By moving the election of the treasurer, auditor general and attorney general to the off year they would become the marque races.  The news media could devote more attention to the candidates.  Fundraising would be easier.  Party activists could devote more time to their campaigns. Voters would be able to focus.  They would go from being a side salad in the electoral buffet to the main course.

With a brighter spotlight on these offices we would hopefully end up with more voters at the polls, and fewer of the officials elected in jail.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is lhenry@lincolninstitute.org.)

Permission to reprint is granted provided author and affiliation are cited.

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