[R-G] [BillTottenWeblog] Middle Class Held Hostage by Fat-Cat Corporate Raiders

Thu Jan 17 18:04:44 MST 2008

By David Sirota, Creators Syndicate

AlterNet (December 14 2007)

As a central villain in the famous book Barbarians At the Gate, Henry
Kravis has become one of the world's richest mavens of private equity -
the Wall Street sector that buys up companies, breaks them apart and
sells their assets. In 2006, Kravis made $450 million, or more per hour
($51,000) than the average American household makes in a year.
Incredibly, his wealth puts him right within the average for executives
in this largely unregulated industry that oversees about $400 billion in
annual business.

Brutes like Kravis haven't amassed such treasure by playing nice. During
their takeover rampages, they often crush workers and leave communities
for dead. And now, as we've seen over the last month, when the tax man
comes calling, these barbarians start taking hostages.

Congress, you may have noticed, is trying to prevent the Alternative
Minimum Tax (AMT) from hitting the middle class. This tax was originally
designed to prevent billionaires like Kravis from using creative
accounting to avoid paying any taxes whatsoever. However, the AMT did
not adjust for inflation, and so the tax now threatens to hammer
millions of ordinary Americans.

To prevent this unintended consequence without adding to the national
debt, Congress has to find about $50 billion. That is roughly the amount
stolen each year through a tax loophole allowing those like Kravis to
pay a lower effective tax rate than the servants who tend to his 26-room
Park Avenue penthouse. Instead of paying the 35 percent income tax rate,
private equity managers are permitted to pay the 15 percent capital
gains rate on most of their earnings. They are also allowed to use
offshore corporations to shelter their income from taxes.

In November, House Democrats passed a bill to prevent the AMT from
hitting the middle class. The legislation included language shutting
down the Henry Kravis Loophole. William Stanfill, a Colorado venture
capitalist who testified to Congress in support of that provision,
correctly says there are no negative side effects to "taxing rich white
guys the same as the rest of the population".

However, when the bill hit the Senate, the Washington Post reported that
"a sprawling, big-money lobbying campaign" stopped it cold.

In the first nine months of 2007, the private equity industry spent
about $20 million on campaign donations and lobbying. That kind of cash
is barely a fraction of what just one executive like Kravis saves each
year thanks to the tax loophole. But it was more than enough to convince
a bipartisan group of senators to block the loophole-closing bill, thus
creating today's hostage situation.

The first set of hostages are those honest people who - rather than
trying to avoid taxes like the Henry Kravises - paid too much in taxes.
The IRS says that up to 32 million tax refunds could be delayed because
the AMT tax bill has been indefinitely stalled.

The second set of hostages is the middle class. If the private equity
executives' campaign ends up killing the AMT bill altogether, millions
of households making between $50,000 and $100,000 a year could be forced
to pay an average of $2,000 in new taxes - not exactly helpful at a time
of ballooning health care premiums and mortgage payments.

Then there are millions of kindergartners, most of whom don't yet know
what a tax is. If Congress passes the AMT relief measure without paying
for it, those kids will be forced to pay the added interest on the
national debt when the bill ultimately comes due.

To fathom the boldness of this hostage-taking, note that it is all
happening at the very same time Bloomberg News reports that the IRS has
launched an investigation "into suspected tax abuses at hedge funds and
private-equity firms after determining many firm partners don't file
returns and may have improperly characterized transactions".

But, then, as a new movie series from Brave New Films shows, this is the
typical behavior of the greediest in a "me" culture spinning wildly out
of control. The videos, which you can watch at www.warongreed.org, use
Kravis to show how the barbarians are no longer at the gate. Today's
Attila the Huns are inside the Capitol, hobnobbing with our
congressional representatives and merrily manufacturing a standoff. If
they are successful in preserving their tax scheme, the rest of us will
feel the consequences either this April 15th, or many April 15ths in the
future.

_____

David Sirota is a nationally syndicated weekly newspaper columnist for
Creators Syndicate. He is the New York Times bestselling author of
Hostile Takeover: How Big Money and Corruption Conquered Our Government
and How We Take It Back (Crown 2006). He is also a senior fellow at the
Campaign for America's Future and a board member of the Progressive
States Network. His second book, The Uprising, is due in the Spring of 2008

http://www.alternet.org/story/70603/

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