Irwin Stelzer: Private equity will have to play fair on tax

Posted by Kendall Harmon

At times, a sense of fairness trumps such economic considerations, and this is one of those times.

Here’s why. Americans have traditionally been unperturbed by inequality levels that would provoke Europeans to turn out their governments. And there is no indication that the most extreme populist politician, Democratic presidential wannabe John Edwards, is gaining much traction for his argument that there are “two Americas”, one very rich, the other very poor.

But there is some indication that Americans worry that it is no longer the case that everyone can get rich, or at least look forward to a rising standard of living. Add to that the decoupling of some high incomes from performance. Too many failed executives leave with golden good-byes after mismanaging the companies they were supposed to take to the next level of profitability.

Then there is the not-so-trivial matter of the flamboyant life styles of the private-equity class. Black-stone boss Steve Schwarzman threw a very public birthday party for himself at a cost variously estimated at between $3m and $15m. Tales of $5,000 bottles of champagne and even more expensive female companionship, lavish parties in far-flung places, with private performances by the world’s most highly paid entertainers, create more than harmless gossip. They create an atmosphere in which it is difficult for politicians to defend a tax structure that claims 10%-15% of the gains on private-equity deals, but 40% of the overtime wages of moderately well-paid workers.

Read it all.

Update: Ben Stein has further thoughts on the same subject here.



Filed under: * Economics, Politics

2 Comments
Posted July 1, 2007 at 2:33 pm [Printer Friendly] [Print w/ comments]



1. DonGander wrote:

“They create an atmosphere in which it is difficult for politicians to defend a tax structure that claims 10%-15% of the gains on private-equity deals, but 40% of the overtime wages of moderately well-paid workers.”

Good, lower the rate on “moderately well-paid workers.”

DonGander

July 1, 2:48 pm | [comment link]
2. Words Matter wrote:

From Michael Novak:

http://www.firstthings.com/onthesquare/?p=775

• Income inequality is growing quickly, as the rich get richer and the poor get poorer, especially in the United States.

This repeats mindlessly false accusations even older than the writings of Karl Marx. Instead of consulting ideology, it is more useful to think clearly and to check the real numbers. In the United States, look first at the people in the bottom 20 percent of income. Who are they?

Forty years ago, a large part of them were in male-headed households, in which there was one worker (usually the male) at a low wage. Today, more than two-thirds of poor households are led by women, about half of them widows and almost another half unmarried mothers with children. Often these poor female-headed households have no full-time worker at all. Where there is no work, there is no income of the sort counted by the government.

In short, the demographic composition of the lowest 20 percent has changed dramatically in the past forty years.

Even so, the Congressional Budget Office (independent, although supervised by Democrats) has just reported that the earning of the lowest 20 percent are about 80 percent higher, in real terms, than they were about fifteen years ago in 1990. This is, of course, because the welfare reform act brought millions in the bottom quintile back into paying jobs. This seems to me like a good, Christian thing to do.

Incidentally, the middle class also gained significant ground between 1992 and 2005, in large part under President Clinton but going even higher under President Bush. The median family with children earned $8,500 more in purchasing power (after inflation) in 2005 than in 1990. Put another way, the level of income of the bottom half of the population moved much higher in about fifteen years. The steady progress of the middle-class family, as well as of the poor household, is also a good outcome, is it not? The CBO also reports that the average income for poor households increased by 45 percent just between 2001 and 2003, the weakest two years of this fifteen-year cycle.

Meanwhile, we tend to ignore the impressive fact that the bottom 20 percent in America is constantly being replenished by dirt-poor immigrants. These, in turn, year by year, rise steadily out of poverty, only to be replaced by a new wave of poor immigrants. In other words, the persons in the bottom 20 percent keep changing, as millions steadily move up from that bracket, and millions more immigrate in. This also seems to me a favorable omen for important Christian values.

July 1, 3:13 pm | [comment link]
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